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THE WEALTH

OF NATIONS

ADAM SMITH

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httos://archive.org/details/ison_ 9781978063846

THE WEALTH OF
NATIONS

2ef0ITAA 2

THE WEALTH OF
NATIONS

ADAM SMITH

GLOBAL CLASSICS
LONDON, UNITED KINGDOM.

transmitted in any form or by any means, including photocopying, recording, or

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ISBN-13: 978-1978063846
ISBN-10: 1978063849

Any references to historical events, real people, or real places are used fictitiously.
Names, characters, and places are products of the author’s imagination.

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Global Classics.
London, United kingdom.

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CONTENTS

ASO TOGA Lise eh pri ace EEA et er EP 11
SE ae MAE evnen eae eeeay reSlvecvesdys fester. tcthv’nan vires oletuacatea ie 11
PES ESL emery eran er ett ee ye Re eh 18
EN ARAL LTR ee ee Seen: Fe Per nent RAT Ber Lake o 21
Bede La Reg] Matias areerria etieccieerdieia¥ dhieer ay einen at anhitee cree 25
Ne Te Leste Lie Vleet teeta fics dasa tike tis cline estar Race ae 30
ETERS A BA SA i a ee era RRC eT NT 42
la CBW ed BL 004 WS ete eae ren eM ronreMnver, cone r arr eg: 48
ELATED RSV LL pee Bet Soe errs ere 10 ee te ae 55
OTe WS A BO Ser Sn eee Oe eran MPR ep nt 7 beer. 2
(ho LNRM 4 PGE REDS Spl yin i is Si liad Re Poole iene Ae ar eed 80
cm PANE DOG Biss pert ers tran aah eeavcro Uk een cere ae 113
aS OVO) KGL erteerertestcetestcerstettcetertrsts;cvstritstsrststccceccecsesecs 198
CATIA ECGS Th. cootes ait ranra epee tice ware ra melerr pi Anbar ie terete nt Bree 200
CUR UNGEe TEA RG Nie ee psa ra ac ee ce a cras Re gE Le 206
CUR UANTEA DD 8S THD Roe econ enced terete eer aa eee cece Renner career err 240
PL EG Dg Veter sia at oem ator ot. Sacto nssenbuma asic act ante 254
(CT Vl UR BON ls ene oe en ob Pee eee eee 260
SOO) LL Demerara tatsees ectscensccssbcce neon tacrePeccctecessoressesess 272
CTR UAM EAGT AS, I ks costae eet Sb a O SVB Rien Rann rare ener eee rere Ze

TE UAW PAPI ME I Loc Je os el eee ee or ee eee ee eee 276

THE WEALTH OF NATIONS

CHAPTER IL)... Ee ee ee teen ea een een 285
GHAPTIGR: LV ed eset ae cee oe eee ee ee 293
BOOK V 8 iicscctesvssseceecsstssonestertcssevttetetsetreecenecstest stars 303
LO) BAN ed Mod 34) Babee trie pres Ma A iia eee eh in cccionttas 304
GHAPT ER: Lhe... eer en eree eee ene es eee ere 321
CHAP TI Re LLU Ate sccrs hs ujectenttaes auch aie aa eee eee ances eee 336
LGN A ol SH kd age pe Py I ROR as coer A cA sckderemnttone 357
Le] BN ofl all tty \' rasa rebate niente peti idel cook tale easter e acces 360
CHAP THRGV Lesieeiaec arene eee eetentee eens 389
CPA EER eV Liver rr atterec scone cee atte een nee ee eee 398
ils Ge Wiesd 1 OH arpa Ml hegre cout nremvemneie alice he nina tetra gaet pyaar ogres ce 462
(e} aih'ad eel EI Od ned D, ee rergo pee etree brent coher eerie roertae rete er tdaadtioticc ATT
BOOK BV orcrriceis ssatrs fepek Tek eee See eee ee 500
CHAR TER G iescssitisaet cereeran Ratatat rere i fee ee 500
CHAPTER Ra oct ccatcecsescteteci cc: ene ee 589
CULAR T BR LIES 22st ee a ee ee 658

ADAM SMITH

INTRODUCTION AND PLAN OF
THE WORK.

| ae every nation is the fund which originally supplies it with all

According, therefore, as this produce, or what is purchased with it, bears a greater
or smaller proportion to the number of those who are to consume it, the nation will
be better or worse supplied with all the necessaries and conveniencies for which it has
occasion.

But this proportion must in every nation be regulated by two different circumstances:
first, by the skill, dexterity, and judgment with which its labour is generally applied; and,
secondly, by the proportion between the number of those who are employed in useful
labour, and that of those who are not so employed. Whatever be the soil, climate, or
extent of territory of any particular nation, the abundance or scantiness of its annual
supply must, in that particular situation, depend upon those two circumstances.

The abundance or scantiness of this supply, too, seems to depend more upen the
former of those two circumstances than upon the latter.

of hunters and fishers,
in useful labour, and endeavours to provide, as well as he can, the necessaries and
conveniencies of life, for himself, and such of his family or tribe as are either too old,

or too young, or too infirm, to go a-hunting and fishing. Suchunasiogs however, are
so miserably poor, that, from mere want, they are frequently reduced, or at least think
themselves reduced, to the necessity sometimes of directly destroying, and sometimes

to perish with hunger, or to be devoured by wild beasts.

- nations, on the contrary, though ag

The causes of this improvement in the productive powers of labour, and the order
according to which its produce is naturally distributed among the different ranks and
conditions of men in the society, make the subject of the first book of this Inquiry.

THE WEALTH OF NATIONS

Whatever be the actual state of the skill, dexterity, and judgment, with which labour

is applied in any nation, the abundance or scantiness of its annual supply

during the continuance of that state,

employed. The number of useful and productive labourers, it will hereafter appear, is
everywhere in proportion to the quantity of capital stock which is employed in setting
them to work, and to the particular way in which it is so employed. The second book,
therefore, treats of the nature of capital stock, of the manner in which it is gradually
accumulated, and of the different quantities of labour which it puts into motion,
according to the different ways in which it is employed.

Nations tolerably well advanced as to skill, dexterity, and judgment, in the application
of labour, have followed very different plans in the general conduct or direction of it;
and those plans have not all been equally favourable to the greatness of its produce.
The policy of some nations has given extraordinary encouragement to the industry
of the country; that of others to the industry of towns. Scarce any nation has dealt
equally and impartially with every sort of industry. Since the down-fall of the Roman
empire, the policy of Europe has been more favourable to arts, manufactures, and
commerce, the industry of towns, than to agriculture, the Industry of the country. The
circumstances which seem to have introduced and established this policy are explained
in the third book.

Though those different plans were, perhaps, first introduced by the private interests
and prejudices of particular orders of men, without any regard to, or foresight of, their
consequences upon the general welfare of the society; yet they have given occasion to
very different theories of political economy; of which some magnify the importance
of that industry which is carried on in towns, others of that which is carried on in the
country. Those theories have had a considerable influence, not only upon the opinions
of men of learning, but upon the public conduct of princes and sovereign states. I
have endeavoured, in the fourth book, to explain as fully and distinctly as I can those
different theories, and the principal effects which they have produced in different ages
and nations. ‘

To explain in what has consisted the revenue of the great body of the people, or
what has been the nature of those funds, which, in different ages and nations, have
supplied their annual consumption, is the object of these four first books. The fifth
and last book treats of the revenue of the sovereign, or commonwealth. In this book

I have endeavoured to shew, fi at ion,
_ of commonwealth; which of those enses ought to be defrayed by the general

contribution of the whole society, and which of them, by that of some particular

part only, or of some particular members of it: secondly, what are the different

; and, y and lastly, what are the reasons

9 UU

ADAM SMITH

of this revenue, or to contract debts; and what have been the effects of those debts
upon the real wealth, the annual produce of the land and labour of the society.

ADAM SMITH

BOOK I

OF THE CAUSES OF IMPROVEMENT
IN THE PRODUCTIVE POWERS
OF LABOUR, AND OF THE ORDER
ACCORDING TO WHICH ITS PRODUCE
IS NATURALLY DISTRIBUTED AMONG
THE DIFFERENT RANKS OF THE
PEOPLE.

CHAPTER I.
OF THE DIVISION OF LABOUR.

he greatest improvements in the productive powers of labour, and the greater part

of the skill, dexterity, and judgment, with which it is anywhere directed, or applied,
seem to have been the effects of the division of labour. The effects of the division of
labour, in the general business of society, will be more easily understood, by considering
in what manner it operates in some particular manufactures. It is commonly supposed
to be carried furthest in some very trifling ones; not perhaps that it really is carried
further in them than in others of more importance: but in those trifling manufactures
which are destined to supply the small wants of but a small number of people, the
whole number of workmen must necessarily be small; and those employed in every
different branch of the work can often be collected into the same workhouse, and
placed at once under the view of the spectator.

In those great manufactures, on the contrary, which are destined to supply the great
wants of the great body of the people, every different branch of the work employs
so great a number of workmen, that it 1s impossible to collect them all into the same
workhouse. We can seldom see more, at one time, than those employed in one single
branch. Though in such manufactures, therefore, the work may really be divided into
a much greater number of pafts, than in those of a more trifling nature, the division is

ial

THE WEALTH OF NATIONS

not near so obvious, and has accordingly been much less observed.

To take an example, therefore, from a very trifling manufacture, but one in which
the division of labour has been very often taken notice of, the trade of a pin-maker:
a workman not educated to this business (which the division of labour has rendered
a distinct trade), nor acquainted with the use of the machinery employed in it (to the
invention of which the same division of labour has probably given occasion), could
scarce, perhaps, with his utmost industry, make one pin in a day, and certainly could
not make twenty. But in the way in which this business is now carried on, not only the
whole work is a peculiar trade, but it is divided into a number of branches, of which the
greater part are likewise peculiar trades. One man draws out the wire; another straights
it; a third cuts it; a fourth points it; a fifth grinds it at the top for receiving the head;
to make the head requires two or three distinct operations; to put it on is a peculiar
business; to whiten the pins is another; it is even a trade by itself to put them into the
paper; and the important business of making a pin is, in this manner, divided into
about eighteen distinct operations, which, in some manufactories, are all performed by
distinct hands, though in others the same man will sometimes perform two or three of
them. I have seen a small manufactory of this kind, where ten men only were employed,
and where some of them consequently performed two or three distinct operations. But
though they were very poor, and therefore but indifferently accommodated with the
necessary machinery, they could, when they exerted themselves, make among them
about twelve pounds of pins in a day. There are in a pound upwards of four thousand
pins of a middling size. Those ten persons, therefore, could make among them upwards
of forty-eight thousand pins in a day. Each person, therefore, making a tenth part of
forty-eight thousand pins, might be considered as making four thousand eight hundred
pins in a day. But if they had all wrought separately and independently, and without any
of them having been educated to this peculiar business, they certainly could not each
of them have made twenty, perhaps not one pin in a day; that is, certainly, not the two
hundred and fortieth, perhaps not the four thousand eight hundredth, part of what
they are at present capable of performing, in consequence of a proper division and
combination of their different operations.

In every other art and manufacture, the effects of the division of labour are similar
to what they are in this very trifling one, though, in many of them, the labour can
neither be so much subdivided, nor reduced to so great a simplicity of operation.

“The division of labour, however, so far as it can be introduced, occasions, in every
ELS C abour, -paration o

is the work of one man, in a rude state of society, being generally that of several
in an improved one. the
; the manufacturer, nothing but a manufacturer. The labour, too, which is

necessary to produce any one complete manufacture, is almost always divided among

ADAM SMITH

a great number of hands. How many different trades are employed in each branch of
the linen and woollen manufactures, from the growers of the flax and the wool, to
the bleachers and smoothers of the linen, or to the dyers and dressers of the cloth!
The nature of agticulture, indeed, does not admit of so many subdivisions of labour,
nor of so complete a separation of one business from another, as manufactures. It is
impossible to separate so entirely the business of the grazier from that of the corn-
farmer, as the trade of the carpenter is commonly separated from that of the smith.
The spinner is almost always a distinct person from the weaver; but the ploughman, the
harrower, the sower of the seed, and the reaper of the corn, are often the same. The
occasions for those different sorts of labour returning with the different seasons of the
year, it is impossible that one man should be constantly employed in any one of them.

erent

provement

indeed, generally excel all.
but they are
mer. Their lands are in
er cultivated, and having more labour Rael expense bestowed upon them,

produce more in proportion to the extent and natural fertility of the ground. But this
superiority of produce is seldom much more than in proportion to Hake superiority

r; or, at least, it is never so much more ~

e corn of the rich country, therefore,

of labour and a

will not always, in the same dewree of Pence come cheaper to market than that of
the poor. The corn of Poland, in the same degree of goodness, is as cheap as that of
France, notwithstanding the superior opulence and improvement of the latter country.
The corn of France is, in the corn-provinces, fully as good, and in most years nearly
about the same price with the corn of England, though, in opulence and improvement,
France is perhaps inferior to England. The corn-lands of England, however, are better
cultivated than those of France, and the corn-lands of France are said to be much
better cultivated than those of Poland. But though the poor country, notwithstanding
the inferiority of its cultivation, can, in some measure, rival the rich in the cheapness
and goodness of its corn, it can pretend to no such competition in its manufactures,
at least if those manufactures suit the soil, climate, and situation, of the rich country.
The silks of France are better and cheaper than those of England, because the silk
manufacture, at least under the present high duties upon the importation of raw silk,
does not so well suit the climate of England as that of France. But the hardware and
the coarse woollens of England are beyond all comparison superior to those of France,
and much cheaper, too, in the same degree of goodness. In Poland there are said to be
scarce any manufactures of any kind, a few of those coarser household manufactures
excepted, without which no country can well subsist.

This great increase in the quantity of work, which, in consequence of the division

£3

THE WEALTH OF NATIONS

of labour, the same number of people are capable of performing, is owang to three

different circumstances; 9 the incre dexterity in every pa ur WOrKMan,

and, o the invention of a gre

, necessarily incteasesither

ey the

quantity of the work he can ae and the

A common smith, who, eee mE to handle the hammer, has never been
used to make nails, if, upon some particular occasion, he is obliged to attempt it, will
scatce, I am assured, be able to make above two or three hundred nails in a day, and
those, too, very bad ones. A smith who has been accustomed to make nails, but whose
sole or principal business has not been that of a nailer, can seldom, with his utmost
diligence, make more than eight hundred or a thousand nails in a day. I have seen
several boys, under twenty years of age, who had never exercised any other trade but
that of making nails, and who, when they exerted themselves, could make, each of
them, upwards of two thousand three hundred nails in a day. The making of a nail,
however, is by no means one of the simplest operations. The same person blows the

bellows, stirs or mends the fire as there is occasion, heats the iron, and forges every
part of the nail: in forging the head, too, he is obliged to change his tools. The different
operations into which the making of a pin, or of a metal button, is subdivided, are all
of them much more simple, and the dexterity of the person, of whose life it has been
the sole business to perform them, is usually much greater. The rapidity with which
some of the operations of those manufactures are performed, exceeds what the human
hand could, by those who had never seen them, be supposed capable of acquiring.

© Secondly, The advantage which is gained by saving the time commonly lost i in
' "passing from one sort of work to another, i is much greater than we should at first view

be apt to imagines itilt rc one kind of work to

another, A country

weaver, who cultivates a small farm, must loose a good deal of time in passing from his
loom to the field, and from the field to his loom. When the two trades can be carried
on in the same workhouse, the loss of time is, no doubt, much less. It is, even in this
case, however, very considerable. A man commonly saunters a little in turning his hand
from one sort of employment to another. When he first begins the new work, he is
seldom very keen and hearty; his mind, as they say, does not go to it, and for some time
he rather trifles than applies to good purpose. The habit of sauntering, and of indolent
careless application, which is naturally, or rather necessarily, acquired by every country
workman who is obliged to change his work and his tools every half hour, and to
apply his hand in twenty different ways almost every day of his life, renders him almost
always slothful and lazy, and incapable of any vigorous application, even on the most

pressing occasions. Independent, therefore, of his deficiency in point of dexterity, this

cause alone must always reduce considerably the quantity of work which he is capable
of performing,

Thirdly, and lastly, everybody must be sensible how much labour is facilitated and
abridged by the application of proper machinery. It is unnecessary to give any example.
I shall only observe, therefore, that the invention of all those machines by which labour
is so much facilitated and abridged, seems to have been originally owing to the division
of labour. Men are much more likely to discover easier and readiet methods of attaining
any object, when the whole attention of their minds is directed towards that single
object, than when it is dissipated among a great variety of things. But, in consequence
of the division of labour, the whole of every man’s attention comes naturally to be
directed towards some one very simple object. It is naturally to be expected, therefore,
that some one or other of those who are employed in each particular branch of labour
should soon find out easier and readier methods of performing their own particular
work, whenever the nature of it admits of such improvement. A great part of the
machines made use of in those manufactures in which labour is most subdivided, were
originally the invention of common workmen, who, being each of them employed
in some very simple operation, naturally turned their thoughts towards finding out
easier and readier methods of performing it. Whoever has been much accustomed to
visit such manufactures, must frequently have been shewn very pretty machines, which
were the inventions of such workmen, in order to facilitate and quicken their own
particular part of the work. In the first fire engines {this was the current designation
for steam engines}, a boy was constantly employed to open and shut alternately the
communication between the boiler and the cylinder, according as the piston either
ascended or descended. One of those boys, who loved to play with his companions,
observed that, by tying a string from the handle of the valve which opened this
communication to another part of the machine, the valve would open and shut without
his assistance, and leave him at liberty to divert himself with his play-fellows. One of
the greatest improvements that has been made upon this machine, since it was first
invented, was in this manner the discovery of a boy who wanted to save his own labour.

All the improvements in machinery, however, have by no means been the inventions
of those who had occasion to use the machines. Many improvements have been made
by the ingenuity of the makers of the machines, when to make them became the
business of a peculiar trade; and some by that of those who are called philosophers, or
men of speculation, whose trade it is not to do any thing, but to observe every thing,
and who, upon that account, are often capable of combining together the powers of the
most distant and dissimilar objects in the progress of society, philosophy or speculation
becomes, like every other employment, the principal or sole trade and occupation of
a particular class of citizens. Like every other employment, too, it is subdivided into
a great number of different branches, each of which affords occupation to a peculiar
tribe or class of philosophers; and this subdivision of employment in philosophy,
as well as in every other business, improve dexterity, and saves time. Each individual
becomes more expert in his own peculiar branch, more work is done upon the whole,

- THE WEALTH OF NATIONS

and the quantity of science is considerably increased by it.
It is the great multiplication of the productions of all the different arts, in
consequence of the division of labour, which occasions, in sleds aes: society,

that universal opulence

abundantly with what they have occasion for, a ey accommodate him as amply with
what he has occasion for, and a general plenty diffuses itself through all the different
ranks of the society.

Observe the accommodation of the most common artificer or daylabourer in a
civilized and thriving country, and you will perceive that the number of people, of
whose industry a part, though but a small part, has been employed in procuring him
this accommodation, exceeds all computation. fe)

he shepherd, the sorter of the wool,

the wool-comber or carder, the dyer, the scribbler, the spinner, the weaver, the fuller,
the dresser, with many others, must all join their different ¢ arts in order to complete even
this cates eae

How much commerce and navigation

in particular, how many ship-builders, sailors, sail-makers, rope-makers, must have been
employed in order to bring together the different drugs made use of by the dyer, which
often come from the remotest corners of the world?

ane ewvat sob Sal RI MIE SSAA Nairn pa ! To say
nothing of such complicated machines as the ship of the sailor, the mill of the fuller,

or even the loom of the weaver, let us consider only what a variety of labour is requisite
in order to form that very simple machine, the shears with which the shepherd clips the
wool. The miner, the builder of the furnace for smelting the ore, the feller of the timber,
the burner of the charcoal to be made use of in the smelting-house, the brickmaker, the
bricklayer, the workmen who attend the furnace, the millwright, the forger, the smith,
must all of them join their different arts in order to produce them. Were we to examine,
in the same manner, all the different parts of his dress and household furniture, the
coarse linen shirt which he wears next his skin, the shoes which cover his feet, the
bed which he hes on, and all the different parts which compose it, the kitchen-grate
at which he prepares his victuals, the coals which he makes use of for that purpose,
dug from the bowels of the earth, and brought to him, perhaps, by a long sea and a
long land-carriage, all the other utensils of his kitchen, all the furniture of his table,
the knives and forks, the earthen or pewter plates upon which he serves up and divides
his victuals, the different hands employed in preparing his bread and his beer, the glass
window which lets in the heat and the light, and keeps out the wind and the rain, with

ADAM SMITH

all the knowledge and art requisite for preparing that beautiful and happy invention,
without which these northern parts of the world could scarce have afforded a very

comfortable habitation, (FS ue nner

with the more extravagant luxury of hes = atts Mec tniadation,
must no doubt appear extremely simple and easy; and yet it may be true, perhaps, that
the accommodation of an European prince does not always so much exceed that of
an industrious and frugal peasant, as the accommodation of the latter exceeds that of
many an African king, the absolute masters of the lives and liberties of ten thousand
naked savages.

Compared, indeed

Ane

THE WEALTH OF NATIONS

CHAPTER II.

OF THE PRINCIPLE WHICH
GIVES OCCASION TO THE
DIVISION OF LABOUR.

his division of labour, from which so many advantages are derived, is not originally
the effect of any human wisdom, which foresees and intends that general opulence
to which it gives occasion. It is the necessary, though very slow and gradual, consequence
of acertain propensity in human nature, which has in view no such extensive utility; the

= >
Whether this propensity be one of those mm principles in human nature, of

which no further account can be given, or whether, as seems more probable, it be
the necessary consequence of the faculties of reason and speech, it belongs not to
out present subject to inquire. It is common to all men, and to be found in no other
race of animals, which seem to know neither this nor any other species of contracts.
Two greyhounds, in running down the same hare, have sometimes the appearance of
acting in some sort of concert. Each turns her towards his companion, or endeavours
to intercept her when his companion turns her towards himself. This, however, is not
the effect of any contract, but of the accidental concurrence of their passions in the
same object at that particular time. Nobody ever saw a dog make a fair and deliberate
exchange of one bone for another with another dog. Nobody ever saw one animal, by
its gestures and natural cries signify to another, this is mine, that yours; I am willing to
give this for that. When an animal wants to obtain something either of a man, or of
another animal, it has no other means of persuasion, but to gain the favour of those
whose service it requires. A puppy fawns upon its dam, and a spaniel endeavours, by
a thousand attractions, to engage the attention of its master who is at dinner, when

it wants to be fed by hi SESSION, and
when he has no other means of engaging them to act according to his inclinations,

. He has not
time, however, to do this upon every occasion. In civilized society he stands at all times

in need of the co-operation and assistance of great multitudes, while his whole life is
scarce sufficient to gain the friendship of a few persons. In almost every other race of

it, and in

reatute. But man has

ADAM SMITH

almost constant occasion for the help of his brethren, and it is in vain for him to expect
it from their benevolence ae He will be more te likely to 0 prevail if he can interest their
self-love in his favour, and.

Whoever offers to another a bargain of any kind, proposes

to do this.
Numninesiasimnnencuelisg 2"< it is in this manner that we obtain from one another
the far greater part of those good offices which we stand in need of. It is not from the
benevolence of the butcher, the brewer, or the baker that we expect our dinner, but

from their regard to their own interest. We address ourselves, not to their humanity, but
to their self-love, and never talk to them of our own necessities, but of their advantages.

Even a beggar does not depend upon it entirely. The charity of well-disposed
people, indeed, supplies him with the whole fund of his subsistence. But though this
principle ultimately provides him with all the necessaries of life which he has occasion
for, it neither does nor can provide him with them as he has occasion for them. The
greater part of his occasional wants are supplied in the same manner as those of other
people, by treaty, by barter, and by purchase. With the money which one man gives him
he purchases food. The old clothes which another bestows upon him he exchanges
for other clothes which suit him better, or for lodging, or for food, or for money, with
which he can buy either food, clothes, or lodging, as he has occasion.

of, so it is this

In a tribe of hunters or shepherds, a particular person makes bows and arrows, for
example, with more readiness and dexterity than any other. He frequently exchanges
them for cattle or for venison, with his companions; and he finds at last that he can, in
this manner, get more cattle and venison, than if he himself went to the field to catch
them. From a regard to his own interest, therefore, the making of bows and arrows
grows to be his chief business, and he becomes a sort of armouret. Another excels in
making the frames and covers of their little huts or moveable houses. He is accustomed
to be of use in this way to his neighbours, who reward him in the same manner with
cattle and with venison, till at last he finds it his interest to dedicate himself entirely
to this employment, and to become a sort of house-carpenter. In the same manner
a third becomes a smith or a brazier; a fourth, a tanner or dresser of hides or skins,

the principal part of the clothing of savages. And thus the certainty of being able to

The difference of natural talents in different men, is, in reality, much less than
we ate aware of; and the very different genius which appears to distinguish men of

THE WEALTH OF NATIONS

different professions, when grown up to maturity, is not upon many occasions so much
the cause, as the effect of the division of labour. The difference between the most
dissimilar characters, between a philosopher and a common street porter, for example,
seems to atise not so much from nature, as from habit, custom, and education. When
they came in to the world, and for the first six or eight years of their existence, they were,
perhaps, very much alike, and neither their parents nor play-fellows could perceive any
remarkable difference. About that age, or soon after, they come to be employed in very
different occupations. The difference of talents comes then to be taken notice of, and
widens by degrees, till at last the vanity of the philosopher is willing to acknowledge
scarce any resemblance. But without the disposition to truck, barter, and exchange,
every man must have procured to himself every necessary and conveniency of life
which he wanted. All must have had the same duties to perform, and the same work to
do, and there could have been no such difference of employment as could alone give
occasion to any great difference of talents.

As it is this disposition which forms that difference of talents, so remarkable among
men of different professions, so it is this same disposition which renders that difference
useful. Many tribes of animals, acknowledged to be all of the same species, derive from
nature a much more remarkable distinction of genius, than what, antecedent to custom
and education, appears to take place among men. By nature a philosopher is not in
genius and disposition half so different from a street porter, as a mastiff is from a
grey-hound, or a grey-hound from a spaniel, or this last from a shepherd’s dog, Those
different tribes of animals, however, though all of the same species are of scarce any
use to one another. The strength of the mastiff is not in the least supported either by
the swiftness of the greyhound, or by the Sagacity of the spaniel, or by the docility of
the shepherd’s dog. f
n

ies. Each animal is still obliged to support and defend itself, separately and
independently, and derives no sort of advantage from that variety of talents with which

nature has distinguished its fellows. “Among men, on the contrary, the most dissimilar

ea, by

ADAM SMITH

~CHAPTER III.

THAT THE DIVISION OF
LABOUR IS LIMITED BY THE
EXTENT OF THE MARKET.

s it is the f

¢ that gives occasion to the division of labour, so
F that not

, no person

mself entirely te mt

t, for want

of the power to exchange all that surplus part of the produce of his own labour, which
is over and above his own consumption, for such parts of the produce of other men’s
labour as he has occasion for.

There are some sorts of industry, even of the lowest kind, which can be carried
on nowhere but in a great town. A porter, for example, can find employment and
subsistence in no other place. A village is by much too narrow a sphere for him; even
an ordinary market-town is scarce large enough to afford him constant occupation. In
the lone houses and very small villages which are scattered about in so desert a country
as the highlands of Scotland, every farmer must be butcher, baker, and brewer, for his
own family. In such situations we can scarce expect to find even a smith, a carpenter,
ot a mason, within less than twenty miles of another of the same trade. The scattered
families that live at eight or ten miles distance from the nearest of them, must learn to
perform themselves a great number of little pieces of work, for which, in more populous
countries, they would call in the assistance of those workmen. Country workmen are
almost everywhere obliged to apply themselves to all the different branches of industry
that have so much affinity to one another as to be employed about the same sort of
materials. A country carpenter deals in every sort of work that is made of wood; a
country smith in every sort of work that is made of iron. The former is not only a
carpenter, but a joiner, a cabinet-maker, and even a carver in wood, as well as a wheel-
wright, a plough-wright, a cart and waggon-maker. The employments of the latter are
still more various. It is impossible there should be such a trade as even that of a nailer in
the remote and inland parts of the highlands of Scotland. Such a workman at the rate
of a thousand nails a-day, and three hundred working days in the year, will make three
hundred thousand nails in the year. But in such a situation it would be impossible to
dispose of one thousand, that is, of one day’s work in the year. As by means of water-

Pal

THE WEALTH OF NATIONS ©

carriage, a more extensive market is opened to every sort of industry than what land-

carriage alone can afford it, so itis upon the sea-coast, and along the banks of navigable

Sapiens parece qi rar nee RTC er and it
is frequently not till a long time after that those improvements extend themselves to the

inland parts of the country. A broad-wheeled waggon, attended by two men, and drawn
by eight horses, in about six weeks time, carries and brings back between London and
Edinburgh near four ton weight of goods. In about the same time a ship navigated by
six or eight men, and sailing between the ports of London and Leith, frequently carries
and brings back two hundred ton weight of goods. Six or eight men, therefore, by the
help of water-carriage, can carry and bring back, in the same time, the same quantity
of goods between London and Edinburgh as fifty broad-wheeled waggons, attended
by a hundred men, and drawn by four hundred horses. Upon two hundred tons of
goods, therefore, carried by the cheapest land-carriage from London to Edinburgh,

there must be charged the maintenance of a hundred men for three weeks, and both
the maintenance and what is nearly equal to maintenance the wear and tear of four
hundred horses, as well as of fifty great waggons. Whereas, upon the same quantity
of goods carried by water, there is to be charged only the maintenance of six or eight
men, and the wear and tear of a ship of two hundred tons burthen, together with the
value of the superior risk, or the difference of the insurance between land and water-
carriage. Were there no other communication between those two places, therefore, but
by land-carriage, as no goods could be transported from the one to the other, except
such whose price was very considerable in proportion to their weight, they could carry
on but a small part of that commerce which at present subsists between them, and
consequently could give but a small part of that encouragement which they at present
mutually afford to each other’s industry. There could be little or no commerce of any
kind between the distant parts of the world. What goods could bear the expense of
land-carriage between London and Calcutta? Or if there were any so precious as to be
able to support this expense, with what safety could they be transported through the

Since such, therefore, are the advantages of water-cartiage, it is natural that the first
improvements of art and industry should be made where this conveniency opens the
whole world for a market to the produce of every sort of labour, and that they should
always be much later in extending themselves into the inland parts of the country. The
inland parts of the country can for a long time have no other market for the greater
part of their goods, but the country which lies round about them, and separates them
from the sea-coast, and the great navigable rivers. The extent of the market, therefore, —
that country. In our North American colonies, the plantations have constantly followed
either the sea-coast or the banks of the navigable rivers, and have scarce anywhere

22.

COt é 3 x

Ul Vi

ADAM SMITH

extended themselves to any considerable distance from both.

The nations that, according to the best authenticated history, appear to have been
first civilized, were those that dwelt round the coast of the Mediterranean sea. That sea,
by far the greatest inlet that is known in the world, having no tides, nor consequently
any waves, except such as are caused by the wind only, was, by the smoothness of its
surface, as well as by the multitude of its islands, and the proximity of its neighbouring
shores, extremely favourable to the infant navigation of the world; when, from their
ignorance of the compass, men were afraid to quit the view of the coast, and from the
imperfection of the art of ship-building, to abandon themselves to the boisterous waves
of the ocean. To pass beyond the pillars of Hercules, that is, to sail out of the straits of
Gibraltar, was, in the ancient world, long considered as a most wonderful and dangerous
exploit of navigation. It was late before even the Phoenicians and Carthaginians, the
most skilful navigators and ship-builders of those old times, attempted it; and they
were, for a long time, the only nations that did attempt it.

Of all the countries on the coast of the Mediterranean sea, Egypt seems to have
been the first in which either agriculture or manufactures were cultivated and improved
to any considerable degree. Upper Egypt extends itself nowhere above a few miles
from the Nile; and in Lower Egypt, that great river breaks itself into many different
canals, which, with the assistance of a little art, seem to have afforded a communication
by water-carriage, not only between all the great towns, but between all the considerable
villages, and even to many farm-houses in the country, nearly in the same manner as
the Rhine and the Maese do in Holland at present. The extent and easiness of this
inland navigation was probably one of the principal causes of the early improvement
of Egypt.

The improvements in agriculture and manufactures seem likewise to have been
of very great antiquity in the provinces of Bengal, in the East Indies, and in some
of the eastern provinces of China, though the great extent of this antiquity is not
authenticated by any histories of whose authority we, in this part of the world, are well
assured. In Bengal, the Ganges, and several other great rivers, form a great number of
navigable canals, in the same manner as the Nile does in Egypt. In the eastern provinces
of China, too, several great rivers form, by their different branches, a multitude of
canals, and, by communicating with one another, afford an inland navigation much
more extensive than that either of the Nile or the Ganges, or, perhaps, than both of
them put together. It is remarkable, that neither the ancient Egyptians, nor the Indians,
nor the Chinese, encouraged foreign commerce, but seem all to have derived their great
opulence from this inland navigation.

All the inland parts of Africa, and all that part of Asia which lies any considerable
way north of the Euxine and Caspian seas, the ancient Scythia, the modern Tartary
and Siberia, seem, in all ages of the world, to have been in the same barbarous and
uncivilized state in which we find them at present. The sea of Tartary is the frozen
ocean, which admits of no navigation; and though some of the greatest rivers in the
world run through that country, they are at too great a distance from one another

Pb)

THE WEALTH OF NATIONS

to carry commerce and communication through the greater part of it. There are in
Africa none of those great inlets, such as the Baltic and Adriatic seas in Europe, the
Mediterranean and Euxine seas in both Europe and Asia, and the gulfs of Arabia, Persia,
India, Bengal, and Siam, in Asia, to carry maritime commerce into the interior parts of
that great continent; and the great rivers of Africa are at too great a distance from one
another to give occasion to any considerable inland navigation. The commerce, besides,
which any nation can carry on by means of a river which does not break itself into
any great number of branches or canals, and which runs into another territory before
it reaches the sea, can never be very considerable, because it is always in the power of
the nations who possess that other territory to obstruct the communication between
the upper country and the sea. The navigation of the Danube is of very little use to the
different states of Bavaria, Austria, and Hungary, in comparison of what it would be, if
any of them possessed the whole of its course, till it falls into the Black sea.

ADAM SMITH

~ CHAPTER IV.

OF THE ORIGIN AND USE OF
MONEY.

, it is but a very

supplies the far greater part of them by | cine that —
of his own labour, which is ion, for such parts of
the produce of other men’s labour as he has occasion for.

But when the division of labour first began to take place, this power of exchanging

must frequently have been very much clogged and embarrassed in its operations. One
man, we shall suppose, has more of a certain commodity than he himself has occasion
for, while another has less. The former, consequently, would be glad to dispose of;
and the latter to purchase, a part of this superfluity. But if this latter should chance
to have nothing that the former stands in need of, no exchange can be made between
them. The butcher has more meat in his shop than he himself can consume, and
the brewer and the baker would each of them be willing to purchase a part of it.
But they have nothing to offer in exchange, except the different productions of their
respective trades, and the butcher is already Bie with all the bread and beer which

he has immediate occasion for.

merchan

th Bret to ren the inconveniency of we
situations, every prudent man in every period of society, after the first establishment
of the division of labour, must naturally have endeavoured to manage his affairs in
such a manner, as to have at all times by him, besides the peculiar produce of his own
, such as ‘De imagined few

industry, a

excha F the du Many
different pec diic® it is Dene were paarnae pote natin of a employed
for this purpose. In the rude ages of society, cattle are said to have been the common
instrument of commerce; and, though they must have been a most inconvenient one,
yet, in old times, we find things were frequently valued according to the number of
cattle which had been given in exchange for them. The armour of Diomede, says
Homer, cost only nine oxen; but that of Glaucus cost a hundred oxen. Salt is said to

THE WEALTH OF NATIONS ©

be the common instrument of commerce and exchanges in Abyssinia; a species of
shells in some parts of the coast of India; dried cod at Newfoundland; tobacco in
Virginia; sugar in some of our West India colonies; hides or dressed leather in some
other countries; and there is at this day a village in Scotland, where it is not uncommon,
IT am told, for a workman to carty nails instead of money to the baker’s shop or the
ale-house.

In all countries, however, men seem at last to have been determined by irresistible
reasons to give the preference, for this employment, to metals above every other

commodity. y

_citculation. The man who wanted to buy salt, for example, and had nothing but cattle
to give in exchange for it, must have been obliged to buy salt to the value of a whole
ox, ot a whole sheep, at a time. He could seldom buy less than this, because what he
was to give for it could seldom be divided without loss; and if he had a mind to buy
more, he must, for the same reasons, have been obliged to buy double or triple the

quantity, the value, to wit, of two or three oxen, or of two or three sheep. If, on the

contrary, instead of sheep or oxen, he ive in exchange for it, he could

was the common instrument of commerce among the ancient Spartans, copper among
the ancient Romans, and gold and silver among all rich and commercial nations.

Those metals seem originally to have been made use of for this purpose in rude
bars, without any stamp or coinage. Thus we are told by Pliny (Plin. Hist Nat. lib.
33, cap. 3), upon the authority of Timaeus, an ancient historian, that, till the time of
Servius Tullius, the Romans had no coined money, but made use of unstamped bars
of copper, to purchase whatever they had occasion for. These rude bars, therefore,
performed at this time the function of money.

The use of metals in this rude state was attended with two very considerable
inconveniences; first, with the trouble of weighing, and secondly, with that of assaying
them. In the precious metals, where a small difference in the quantity makes a great
difference in the value, even the business of weighing, with proper exactness, requires
at least very accurate weights and scales. The weighing of gold, in particular, is an
operation of some nicety in the coarser metals, indeed, where a small error would be
of little consequence, less accuracy would, no doubt, be necessary. Yet we should find
it excessively troublesome if every time a poor man had occasion either to buy or sell
a farthing’s worth of goods, he was obliged to weigh the farthing, The operation of
assaying is still more difficult, still more tedious; and, unless a part of the metal is fairly
melted in the crucible, with proper dissolvents, any conclusion that can be drawn from

ADAM SMITH

it is extremely uncertain. Before the institution of coined money, however, unless they
went through this tedious and difficult operation, people must always have been liable
to the grossest frauds and impositions; and instead of a pound weight of pure silver, or
pure copper, might receive, in exchange for their goods, an adulterated composition of
the coarsest and cheapest materials, which had, however, in their outward appearance,
been made to resemble those metals. pabus ate exchanges, anc

OC A O O ind ; ;
ae have made any conside ms — me : = ee eae -
amp =i, cia ae ee ere meen teeteet ase

ee, (RRR pete |ppemceen AMY i Hence the ori . f oi
‘money and of hosp ofc lle is itutions exac atu

hace -—

ERR a Te See He erreeryrarce

The first public stamps of this kind that were affixed to the current metals, seem in
many cases to have been intended to ascertain, what it was both most difficult and most
important to ascertain, the goodness or fineness of the metal, and to have resembled
the sterling mark which is at present affixed to plate and bars of silver, or the Spanish
mark which is sometimes affixed to ingots of gold, and which, being struck only upon
one side of the piece, and not covering the whole surface, ascertains the fineness, but
not the weight of the metal. Abraham weighs to Ephron the four hundred shekels of
silver which he had agreed to pay for the field of Machpelah. They are said, however, to
be the current money of the merchant, and yet are recetved by weight, and not by tale,
in the same manner as ingots of gold and bars of silver are at present. The revenues
of the ancient Saxon kings of England are said to have been paid, not in money, but in
kind, that is, in victuals a“ provisions of all sorts. introduce

ed
quantity of metal contained in pen In the time of Servius Tullius, who first coined
money at Rome, the Roman as or pondo contained a Roman pound of good copper.
It was divided, in the same manner as our Troyes pound, into twelve ounces, each
of which contained a real ounce of good copper. The English pound sterling, in the
time of Edward I. contained a pound, Tower weight, of silver of a known fineness.
The Tower pound seems to have been something more than the Roman pound, and
something less than the Troyes pound. This last was not introduced into the mint of
England till the 18th of Henry the VIII. The French livre contained, in the time of

oe|

nominations of those coins seem originally to have expressed the weight or

«i

THE WEALTH OF NATIONS eee a

Charlemagne, a pound, Troyes weight, of silver of a known fineness. The fair of Troyes
in Champaign was at that time frequented by all the nations of Europe, and the weights
and measures of so famous a market were generally known and esteemed. The Scots
money pound contained, from the time of Alexander the First to that of Robert Bruce,
a pound of silver of the same weight and fineness with the English pound sterling,
English, French, and Scots pennies, too, contained all of them originally a real penny-
weight of silver, the twentieth part of an ounce, and the two hundred-and-fortieth
part of a pound. The shilling, too, seems originally to have been the denomination of
a weight. “When wheat is at twelve shillings the quarter,” says an ancient statute of
Henry HI. “then wastel bread of a farthing shall weigh eleven shillings and fourpence”.
The proportion, however, between the shilling, and either the penny on the one hand,
or the pound on the other, seems not to have been so constant and uniform as that
between the penny and the pound. During the first race of the kings of France, the
French sou or shilling appears upon different occasions to have contained five, twelve,
twenty, and forty pennies. Among the ancient Saxons, a shilling appears at one time
to have contained only five pennies, and it is not improbable that it may have been as
variable among them as among their neighbours, the ancient Franks. From the time of
Charlemagne among the French, and from that of William the Conqueror among the
English, the proportion between the pound, the shilling, and the penny, seems to have

been uniformly the same as at present, though the value of each has been very different;
for in every country of the world, I believe, the ic injusti nd

Roman as, in the latter ages of the republic, was reduced to the twenty-fourth part of
its original value, and, instead of weighing a pound, came to weigh only half an ounce.
The English pound and penny contain at present about a third only; the Scots pound
and penny about a thirty-sixth; and the French pound and penny about a sixty-sixth
part of their original value. By means of those operations, the princes and sovereign
states which performed them were enabled, in appearance, to pay their debts and fulfil
their engagements with a smaller quantity of silver than would otherwise have been
requisite. It was indeed in appearance only; for theip creditors were really defrauded of

What are the rules which men naturally observe, in exchanging them either for i
money, or for one another, I shall now proceed to examine. These rules determine what

ADAM SMITH

, It is to be observed, has two different meanings, and sometimes

and

The one may be called ‘value
‘in use;’ the other, ‘value j e things which have the greatest value in use

Nothing is more
useful than water; but it will purchase scarce any thing; scarce any thing can be had in

exchange for it. A diamond, on the contrary, has

but a very great

quantity of other goods may frequently be had in exchange for it.
In order to investigate the principles which regulate the exchangeable value of
commodities, I shall endeavour to shew,

I shall endeavour to explain, as fully and distinctly as I can, those three subjects in
the three following chapters, for which I must very earnestly entreat both the patience
and attention of the reader: his patience, in order to examine a detail which may,
perhaps, in some places, appear unnecessarily tedious; and his attention, in order to
understand what may perhaps, after the fullest explication which I am capable of giving
it, appear still in some degree obscure. I am always willing to run some hazard of being
tedious, in order to be sure that I am perspicuous; and, after taking the utmost pains
that I can to be perspicuous, some obscurity may still appear to remain upon a subject,
in its own nature extremely abstracted.

THE WEALTH OF NATIONS | _ ..._—_—-«_._i‘i_ié‘é‘aiéaé(aséééwN.N.

CHAPTER V.

OF THE REAL AND NOMINAL
PRICE OF COMMODITIES, OR |
OF THEIR
AND THEIR PE

€

very man is tich or poor according to the degree in which he can afford to enjoy the

. But after the division

of labour has once thoroughly taken place, it is but a very small part of these with
which a man’s own labour can reeenininsainminnpians: him. The far a part of Le he must derive —

from the labour of other people, and he must be rich or poor according to the quantity

————
*

The real price of every thing, what every thing really costs to the man who wants to

acquire it, is th

it. What every thing is really worth to the
man who has acquired it and who wants to dispose of it, or exchange it for something
else, is the toil and trouble nice it can save to himself, and which it can impose upon
other people aS

much as ane we il of ee or chose goods,
indeed, save us this toil. i which
that was paid for all shin aT It

was not by gold or by silver, rae by labour, that all the wealth of the world was originally
eptchased; and its yahententhase tub omesseesd tna chu eaazanptorensletisettonsgme
new productions, is iene or eeemeemmemmrmmemmmecsemmiaiiicat

Petes es s, is Ee But a has

se er, either
; but
the mere possession of that fortune does not necessarily convey to him either. The

Wealth, as Mr

el or Series: His

ADAM SMITH

power which that possession immediately and directly conveys to him, is the power of
purchasing a certain command over all the labour, or over all the produce of labour
which is then in the market. His fortune is greater or less, precisely in proportion to
the extent of this power, or to the quantity either of other men’s labour, or, what is the
same thing, of the produce of other men’s labour, which it enables him to purchase or
command. The exchangeable value of every thing must always be precisely equal to the
extent of this power which it conveys to its owner.

But though labour be the real measure of the exchangeable value of all commodities,
it is not that by which their value is commonly estimated. It is often difficult to ascertain
the proportion between two different quantities of labour. The time spent in two
different sorts of work will not always alone determine this proportion. The different
degrees of hardship endured, and of ingenuity exercised, must likewise be taken into
account. There may be more labour in an hour’s hard work, than in two hours easy
business; or in an hour’s application to a trade which it cost ten years labour to learn,
than in a month’s industry, at an ordinary and obvious employment. But it is not easy
to find any accurate measure either of hardship or ingenuity. In exchanging, indeed,
the different productions of different sorts of labour for one another, some allowance
is commonly made for both. It is adjusted, however, not by any accurate measure, but
by the higgling and bargaining of the market, according to that sort of rough equality
which, though not exact, is sufficient for carrying on the business of common life.

Every commodity, besides, is more frequently exchanged for, and thereby compared
with, other commodities, than with labour. It is more natural, therefore, to estimate its
exchangeable value by the quantity of some other commodity, than by that of the
labour which it can produce. The greater part of people, too, understand better what is
meant by a quantity of a particular commodity, than by a quantity of labour. The one
is a plain palpable object; the other an abstract notion, which though it can be made
sufficiently intelligible, is not altogether so natural and obvious.

But when barter ceases, and money has become the common instrument of
commerce, every particular commodity is more frequently exchanged for money than
for any other commodity. The butcher seldom carries his beef or his mutton to the
baker or the brewer, in order to exchange them for bread or for beer; but he carries
them to the market, where he exchanges them for money, and afterwards exchanges that
money for bread and for beer. The quantity of money which he gets for them regulates,
too, the quantity of bread and beer which he can afterwards purchase. It is more natural
and obvious to him, therefore, to estimate their value by the quantity of money, the
commodity for which he immediately exchanges them, than by that of bread and beer,
the commodities for which he can exchange them only by the intervention of another
commodity; and rather to say that his butcher’s meat is worth three-pence or fourpence
a-pound, than that it is worth three or four pounds of bread, or three or four quarts of
small beer. Hence it comes to pass, that the exchangeable value of every commodity
is more frequently estimated by the quantity of money, than by the quantity either of
labour or of any other commodity which can be had in exchange for it.

Bil

THE WEALTH OF NATIONS

Gold and silver, however, like every other commodity, vary in their value; are
sometimes cheapet and sometimes dearer, sometimes of easier and sometimes of
more difficult purchase. The quantity of labour which any particular quantity of them
can purchase or command, or the quantity of other goods which it will exchange for,
depends always upon the fertility or barrenness of the mines which happen to be
known about the time when such exchanges are made. The discovery of the abundant
mines of America, reduced, in the sixteenth century, the value of gold and silver in
Europe to about a third of what it had been before. As it cost less labour to bring those
metals from the mine to the market, so, when they were brought thither, they could
purchase or command less labour; and this revolution in their value, though perhaps
the greatest, is by no means the only one of which history gives some account. But as a
measure of quantity, such as the natural foot, fathom, or handful, which is continually
varying in its own quantity, can never be an accurate measure of the quantity of other
things; so a commodity which is itself continually varying in its own value, can never
be an accurate measure of the value of other commodities. Equal quantities of labour,
at all times and places, may be said to be of equal value to the labourer. In his ordinary
state of health, strength, and spirits; in the ordinary degree of his skill and dexterity,
he must always lay down the same portion of his ease, his liberty, and his happiness.
The price which he pays must always be the same, whatever may be the quantity of
goods which he receives in return for it. Of these, indeed, it may sometimes purchase
a greater and sometimes a smaller quantity; but it is their value which varies, not that
of the labour which purchases them. At all times and places, that is dear which it is
difficult to come at, or which it costs much labour to acquire; and that cheap which is
to be had easily, or with very little labour. Labour alone, therefore, never varying in its
own value, is alone the ultimate and real standard by which the value of all commodities
can at all times and places be estimated and compared. It is their real price; money is
theit nominal price only.

But though equal quantities of labour are always of equal value to the labourer, yet
to the person who employs him they appear sometimes to be of greater, and sometimes
of smaller value. He purchases them sometimes with a greater, and sometimes with a
smaller quantity of goods, and to him the price of labour seems to vary like that of all
other things. It appears to him dear in the one case, and cheap in the other. In reality,
however, it is the goods which are cheap in the one case, and dear in the other.

In this popular sense, therefore, labour, like commodities, may be said to have a
real and a nominal price. Its real price may be said to consist in the quantity of the
necessaries and conveniencies of life which are given for it; its nominal price, in the
quantity of money. The labourer is rich or poor, is well or ill rewarded, in proportion
to the real, not to the nominal price of his labour.

The distinction between the real and the nominal price of commodities and
labour is not a matter of mere speculation, but may sometimes be of considerable
use in practice. The same real price is always of the same value; but on account of
the variations in the value of gold and silver, the same nominal price is sometimes of

ADAM SMITH

very different values. When a landed estate, therefore, is sold with a reservation of a
perpetual rent, if it is intended that this rent should always be of the same value, it is
of importance to the family in whose favour it is reserved, that it should not consist
in a particular sum of money. Its value would in this case be liable to variations of two
different kinds: first, to those which arise from the different quantities of gold and
silver which are contained at different times in coin of the same denomination; and,
secondly, to those which arise from the different values of equal quantities of gold and
silver at different times.

Princes and sovereign states have frequently fancied that they had a temporary
interest to diminish the quantity of pure metal contained in their coins; but they seldom
have fancied that they had any to augment it. The quantity of metal contained in the
coins, I believe of all nations, has accordingly been almost continually diminishing, and
hardly ever augmenting. Such variations, therefore, tend almost always to diminish the
value of a money rent.

The discovery of the mines of America diminished the value of gold and silver in
Europe. This diminution, it is commonly supposed, though I apprehend without any
certain proof, is still going on gradually, and is likely to continue to do so for a long
time. Upon this supposition, therefore, such variations are more likely to diminish than
to augment the value of a money rent, even though it should be stipulated to be paid,
not in such a quantity of coined money of such a denomination (in so many pounds
sterling, for example), but in so many ounces, either of pure silver, or of silver of a
certain standard.

The rents which have been reserved in corn, have preserved their value much
better than those which have been reserved in money, even where the denomination
of the coin has not been altered. By the 18th of Elizabeth, it was enacted, that a third
of the rent of all college leases should be reserved in corn, to be paid either in kind,
or according to the current prices at the nearest public market. The money arising
from this corn rent, though originally but a third of the whole, is, in the present times,
according to Dr. Blackstone, commonly near double of what arises from the other
two-thirds. The old money rents of colleges must, according to this account, have sunk
almost to a fourth part of their ancient value, or are worth little more than a fourth
part of the corn which they were formerly worth. But since the reign of Philip and
Mary, the denomination of the English coin has undergone little or no alteration, and
the same number of pounds, shillings, and pence, have contained very nearly the same
quantity of pure silver. This degradation, therefore, in the value of the money rents of
colleges, has arisen altogether from the degradation in the price of silver.

When the degradation in the value of silver is combined with the diminution of the
quantity of it contained in the coin of the same denomination, the loss is frequently
still greater. In Scotland, where the denomination of the coin has undergone much
greater alterations than it ever did in England, and in France, where it has undergone
still greater than it ever did in Scotland, some ancient rents, originally of considerable
value, have, in this manner, been reduced almost to nothing.

THE WEALTH OF NATIONS

Equal quantities of labour will, at distant times, be purchased more nearly with
equal quantities of corn, the subsistence of the labourer, than with equal quantities
of gold and silver, or, perhaps, of any other commodity. Equal quantities of corn,
therefore, will, at distant times, be more nearly of the same real value, or enable the
possessor to purchase or command more nearly the same quantity of the labour of
other people. They will do this, I say, more nearly than equal quantities of almost
any other commodity; for even equal quantities of corn will not do it exactly. The
subsistence of the labourer, or the real price of labour, as I shall endeavour to shew
hereafter, is very different upon different occasions; more liberal in a society advancing
to opulence, than in one that is standing still, and in one that is standing still, than in
one that is going backwards. Every other commodity, however, will, at any particular
time, purchase a greater or smaller quantity of labour, in proportion to the quantity of
subsistence which it can purchase at that time. A rent, therefore, reserved in corn, is
liable only to the variations in the quantity of labour which a certain quantity of corn
can purchase. But a rent reserved in any other commodity is liable, not only to the
variations in the quantity of labour which any particular quantity of corn can purchase,
but to the variations in the quantity of corn which can be purchased by any particular
quantity of that commodity.

Though the real value of a corn rent, it is to be observed, however, varies much
less from century to century than that of a money rent, it varies much more from year
to year. The money price of labour, as I shall endeavour to shew hereafter, does not
fluctuate from year to year with the money price of corn, but seems to be everywhere
accommodated, not to the temporary or occasional, but to the average or ordinary
price of that necessary of life. The average or ordinary price of corn, again is regulated,
as I shall likewise endeavour to shew hereafter, by the value of silver, by the richness or
barrenness of the mines which supply the market with that metal, or by the quantity of
labour which must be employed, and consequently of corn which must be consumed,
in order to bring any particular quantity of silver from the mine to the market. But
the value of silver, though it sometimes varies greatly from century to century, seldom
varies much from year to year, but frequently continues the same, or very nearly the
same, for half a century or a century together. The ordinary or average money price
of corn, therefore, may, during so long a period, continue the same, or very nearly the
same, too, and along with it the money price of labour, provided, at least, the society
continues, in other respects, in the same, or nearly in the same, condition. In the mean
time, the temporary and occasional price of corn may frequently be double one year
of what it had been the year before, or fluctuate, for example, from five-and-twenty
to fifty shillings the quarter. But when corn is at the latter price, not only the nominal,
but the real value of a corn rent, will be double of what it is when at the former, or
will command double the quantity either of labour, or of the greater part of other
commodities; the money price of labour, and along with it that of most other things,
continuing the same during all these fluctuations.

Labour, therefore, it appears evidently, is the only universal, as well as the only

ADAM SMITH

accurate, measure of value, or the only standard by which we can compare the values of
different commodities, at all times, and at all places. We cannot estimate, it is allowed, the
real value of different commodities from century to century by the quantities of silver
which were given for them. We cannot estimate it from year to year by the quantities
of corn. By the quantities of labour, we can, with the greatest accuracy, estimate it,
both from century to century, and from year to year. From century to century, corn is
a better measure than silver, because, from century to century, equal quantities of corn
will command the same quantity of labour more nearly than equal quantities of silver.
From year to year, on the contrary, silver is a better measure than corn, because equal
quantities of it will more nearly command the same quantity of labour.

But though, in establishing perpetual rents, or even in letting very long leases, it
may be of use to distinguish between real and nominal price; it is of none in buying and
selling, the more common and ordinary transactions of human life.

At the same time and place, the real and the nominal price of all commodities are
exactly in proportion to one another. The more or less money you get for any commodity,
in the London market, for example, the more or less labour it will at that time and place
enable you to purchase or command. At the same time and place, therefore, money is
the exact measure of the real exchangeable value of all commodities. It is so, however,
at the same time and place only.

Though at distant places there is no regular proportion between the real and the
money price of commodities, yet the merchant who carries goods from the one to
the other, has nothing to consider but the money price, or the difference between the
quantity of silver for which he buys them, and that for which he is likely to sell them.
Half an ounce of silver at Canton in China may command a greater quantity both of
labour and of the necessaries and conveniencies of life, than an ounce at London. A
commodity, therefore, which sells for half an ounce of silver at Canton, may there
be really dearer, of more real importance to the man who possesses it there, than
a commodity which sells for an ounce at London is to the man who possesses it at
London. If a London merchant, however, can buy at Canton, for half an ounce of
silver, a commodity which he can afterwards sell at London for an ounce, he gains a
hundred per cent. by the bargain, just as much as if an ounce of silver was at London
exactly of the same value as at Canton. It is of no importance to him that half an
ounce of silver at Canton would have given him the command of more labour, and
of a greater quantity of the necessaries and conveniencies of life than an ounce can
do at London. An ounce at London will always give him the command of double the
quantity of all these, which half an ounce could have done there, and this 1s precisely
what he wants.

As it is the nominal or money price of goods, therefore, which finally determines
the prudence or imprudence of all purchases and sales, and thereby regulates almost
the whole business of common life in which price is concerned, we cannot wonder that
it should have been so much more attended to than the real price.

In such a work as this, however, it may sometimes be of use to compare the

oD)

THE WEALTH OF NATIONS

different real values of a particular commodity at different times and places, or the
different degrees of power over the labour of other people which it may, upon different
occasions, have given to those who possessed it. We must in this case compare, not so
much the different quantities of silver for which it was commonly sold, as the different
quantities or labour which those different quantities of silver could have purchased. But
the current prices of labour, at distant times and places, can scarce ever be known with
any degree of exactness. Those of corn, though they have in few places been regularly
recorded, are in general better known, and have been more frequently taken notice
of by historians and other writers. We must generally, therefore, content ourselves
with them, not as being always exactly in the same proportion as the current prices of
labour, but as being the nearest approximation which can commonly be had to that
proportion. I shall hereafter have occasion to make several comparisons of this kind.

In the progress of industry, commercial nations have found it convenient to coin
several different metals into money; gold for larger payments, silver for purchases of
moderate value, and copper, or some other coarse metal, for those of still smaller
consideration, They have always, however, considered one of those metals as more
peculiarly the measure of value than any of the other two; and this preference seems
generally to have been given to the metal which they happen first to make use of as the
instrument of commerce. Having once begun to use it as their standard, which they
must have done when they had no other money, they have generally continued to do so
even when the necessity was not the same.

The Romans are said to have had nothing but copper money till within five years
before the first Punic war (Pliny, lib. xxxil. cap. 3), when they first began to coin
silver. Copper, therefore, appears to have continued always the measure of value in
that republic. At Rome all accounts appear to have been kept, and the value of all
estates to have been computed, either in asses or in sestertii. The as was always the
denomination of a copper coin. The word sestertius signifies two asses and a half.
Though the sestertius, therefore, was originally a silver coin, its value was estimated in
copper. At Rome, one who owed a great deal of money was said to have a great deal
of other people’s copper.

The northern nations who established themselves upon the ruins of the Roman
empire, seem to have had silver money from the first beginning of their settlements,
and not to have known either gold or copper coins for several ages thereafter. There
were silver coins in England in the time of the Saxons; but there was little gold coined
till the time of Edward III nor any copper till that of James I. of Great Britain. In
England, therefore, and for the same reason, I believe, in all other modern nations of
Europe, all accounts are kept, and the value of all goods and of all estates is generally
computed, in silver: and when we mean to express the amount of a person’s fortune,
we seldom mention the number of guineas, but the number of pounds sterling which
we suppose would be given for it.

Originally, in all countries, I believe, a legal tender of payment could be made only
in the coin of that metal which was peculiarly considered as the standard or measure of

ADAM SMITH

value. In England, gold was not considered as a legal tender for a long time after it was
coined into money. The proportion between the values of gold and silver money was
not fixed by any public law or proclamation, but was left to be settled by the market.
If a debtor offered payment in gold, the creditor might either reject such payment
altogether, or accept of it at such a valuation of the gold as he and his debtor could
agree upon. Copper is not at present a legal tender, except in the change of the smaller
silver coins.

In this state of things, the distinction between the metal which was the standard,
and that which was not the standard, was something more than a nominal distinction.

In process of time, and as people became gradually more familiar with the use of
the different metals in coin, and consequently better acquainted with the proportion
between their respective values, it has, in most countries, I believe, been found
convenient to ascertain this proportion, and to declare by a public law, that a guinea, for
example, of such a weight and fineness, should exchange for one-and-twenty shillings,
or be a legal tender for a debt of that amount. In this state of things, and during the
continuance of any one regulated proportion of this kind, the distinction between the
metal, which is the standard, and that which is not the standard, becomes little more
than a nominal distinction.

In consequence of any change, however, in this regulated proportion, this
distinction becomes, or at least seems to become, something more than nominal again.
If the regulated value of a guinea, for example, was either reduced to twenty, or raised
to two-and-twenty shillings, all accounts being kept, and almost all obligations for debt
being expressed, in silver money, the greater part of payments could in either case
be made with the same quantity of silver money as before; but would require very
different quantities of gold money; a greater in the one case, and a smaller in the other.
Silver would appear to be more invariable in its value than gold. Silver would appear to
measure the value of gold, and gold would not appear to measure the value of silver.
The value of gold would seem to depend upon the quantity of silver which it would
exchange for, and the value of silver would not seem to depend upon the quantity of
gold which it would exchange for. This difference, however, would be altogether owing
to the custom of keeping accounts, and of expressing the amount of all great and
small sums rather in silver than in gold money. One of Mr Drummond’s notes for five-
and-twenty or fifty guineas would, after an alteration of this kind, be still payable with
five-and-twenty or fifty guineas, in the same manner as before. It would, after such an
alteration, be payable with the same quantity of gold as before, but with very different
quantities of silver. In the payment of such a note, gold would appear to be more
invariable in its value than silver. Gold would appear to measure the value of silver,
and silver would not appear to measure the value of gold. If the custom of keeping
accounts, and of expressing promissory-notes and other obligations for money, in this
manner should ever become general, gold, and not silver, would be considered as the
metal which was peculiarly the standard or measure of value.

In reality, during the continuance of any one regulated proportion between the

THE WEALTH OF NATIONS

respective values of the different metals in coin, the value of the most precious metal
regulates the value of the whole coin. Twelve copper pence contain half a pound
avoirdupois of copper, of not the best quality, which, before it is coined, is seldom
worth seven-pence in silver. But as, by the regulation, twelve such pence are ordered
to exchange for a shilling, they are in the market considered as worth a shilling, and a
shilling can at any time be had for them. Even before the late reformation of the gold
coin of Great Britain, the gold, that part of it at least which circulated in London and
its neighbourhood, was in general less degraded below its standard weight than the
greater part of the silver. One-and-twenty worn and defaced shillings, however, were
considered as equivalent to a guinea, which, perhaps, indeed, was worn and defaced
too, but seldom so much so. The late regulations have brought the gold coin as near,
perhaps, to its standard weight as it is possible to bring the current coin of any nation;
and the order to receive no gold at the public offices but by weight, is likely to preserve
it so, as long as that order is enforced. The silver coin still continues in the same worn
and degraded state as before the reformation of the cold coin. In the market, however,
one-and-twenty shillings of this degraded silver coin are still considered as worth a
guinea of this excellent gold coin.

The reformation of the gold coin has evidently raised the value of the silver coin
which can be exchanged for it.

In the English mint, a pound weight of gold is coined into forty-four guineas and a
half, which at one-and-twenty shillings the guinea, is equal to forty-six pounds fourteen
shillings and sixpence. An ounce of such gold coin, therefore, is worth £ 3:17:10'/ in
silver. In England, no duty or seignorage is paid upon the coinage, and he who carries
a pound weight or an ounce weight of standard gold bullion to the mint, gets back
a pound weight or an ounce weight of gold in coin, without any deduction. Three
pounds seventeen shillings and tenpence halfpenny an ounce, therefore, is said to be
the mint price of gold in England, or the quantity of gold coin which the mint gives in
return for standard gold bullion.

Before the reformation of the gold coin, the price of standard gold bullion in the
market had, for many years, been upwards of £3:18s. sometimes £ 3:19s, and very
frequently £4 an ounce; that sum, it is probable, in the worn and degraded gold coin,
seldom containing more than an ounce of standard gold. Since the reformation of
the gold coin, the market price of standard gold bullion seldom exceeds £ 3:17:7 an
ounce. Before the reformation of the gold coin, the market price was always more or
less above the mint price. Since that reformation, the market price has been constantly
below the mint price. But that market price is the same whether it is paid in gold or in
silver coin. The late reformation of the gold coin, therefore, has raised not only the
value of the gold coin, but likewise that of the silver coin in proportion to gold bullion,
and probably, too, in proportion to all other commodities; though the price of the
greater part of other commodities being influenced by so many other causes, the rise

in the value of either gold or silver coin in proportion to them may not be so distinct
and sensible.

ADAM SMITH

In the English mint, a pound weight of standard silver bullion is coined into sixty-
two shillings, containing, in the same manner, a pound weight of standard silver. Five
shillings and twopence an ounce, therefore, is said to be the mint price of silver in
England, or the quantity of silver coin which the mint gives in return for standard
silver bullion. Before the reformation of the gold coin, the market price of standard
silver bullion was, upon different occasions, five shillings and fourpence, five shillings
and fivepence, five shillings and sixpence, five shillings and sevenpence, and very often
five shillings and eightpence an ounce. Five shillings and sevenpence, however, seems
to have been the most common price. Since the reformation of the gold coin, the
market price of standard silver bullion has fallen occasionally to five shillings and
threepence, five shillings and fourpence, and five shillings and fivepence an ounce,
which last price it has scarce ever exceeded. Though the market price of silver bullion
has fallen considerably since the reformation of the gold coin, it has not fallen so low
as the mint price.

In the proportion between the different metals in the English coin, as copper is rated
very much above its real value, so silver is rated somewhat below it. In the market of
Europe, in the French coin and in the Dutch coin, an ounce of fine gold exchanges for
about fourteen ounces of fine silver. In the English coin, it exchanges for about fifteen
ounces, that is, for more silver than it is worth, according to the common estimation of
Burope. But as the price of copper in bars is not, even in England, raised by the high
price of copper in English coin, so the price of silver in bullion is not sunk by the low
rate of silver in English coin. Silver in bullion still preserves its proper proportion to
gold, for the same reason that copper in bars preserves its proper proportion to silver.

Upon the reformation of the silver coin, in the reign of William II., the price of
silver bullion still continued to be somewhat above the mint price. Mr Locke imputed
this high price to the permission of exporting silver bullion, and to the prohibition of
exporting silver coin. This permission of exporting, he said, rendered the demand for
silver bullion greater than the demand for silver coin. But the number of people who
want silver coin for the common uses of buying and selling at home, is surely much
greater than that of those who want silver bullion either for the use of exportation or
for any other use. There subsists at present a like permission of exporting gold bullion,
and a like prohibition of exporting gold coin; and yet the price of gold bullion has
fallen below the mint price. But in the English coin, silver was then, in the same manner
as now, under-rated in proportion to gold; and the gold coin (which at that time, too,
was not supposed to require any reformation) regulated then, as well as now, the real
value of the whole coin. As the reformation of the silver coin did not then reduce the
price of silver bullion to the mint price, it is not very probable that a like reformation
will do so now.

Were the silver coin brought back as near to its standard weight as the gold, a guinea,
it is probable, would, according to the present proportion, exchange for more silver in
coin than it would purchase in bullion. The silver coin containing its full standard
weight, there would in this case, be a profit in melting it down, in order, first to sell the

THE WEALTH OF NATIONS

bullion for gold coin, and afterwards to exchange this gold coin for silver coin, to be
melted down in the same manner. Some alteration in the present proportion seems to
be the only method of preventing this inconveniency.

The inconveniency, perhaps, would be less, if silver was rated in the coin as much
above its proper proportion to gold as it is at present rated below it, provided it was at
the same time enacted, that silver should not be a legal tender for more than the change
of a guinea, in the same manner as copper is not a legal tender for more than the
change of a shilling. No creditor could, in this case, be cheated in consequence of the
high valuation of silver in coin; as no creditor can at present be cheated in consequence
of the high valuation of copper. The bankers only would suffer by this regulation.
When a run comes upon them, they sometimes endeavour to gain time, by paying
in sixpences, and they would be precluded by this regulation from this discreditable
method of evading immediate payment. They would be obliged, in consequence, to
keep at all times in their coffers a greater quantity of cash than at present; and though
this might, no doubt, be a considerable inconveniency to them, it would, at the same
time, be a considerable security to their creditors.

Three pounds seventeen shillings and tenpence halfpenny (the mint price of
gold) certainly does not contain, even in our present excellent gold coin, more than
an ounce of standard gold, and it may be thought, therefore, should not purchase
more standard bullion. But gold in coin is more convenient than gold in bullion; and
though, in England, the coinage is free, yet the gold which is carried in bullion to the
mint, can seldom be returned in coin to the owner till after a delay of several weeks.
In the present hurry of the mint, it could not be returned till after a delay of several
months. This delay is equivalent to a small duty, and renders gold in coin somewhat
more valuable than an equal quantity of gold in bullion. If, in the English coin, silver
was rated according to its proper proportion to gold, the price of silver bullion would
probably fall below the mint price, even without any reformation of the silver coin; the
value even of the present worn and defaced silver coin being regulated by the value of
the excellent gold coin for which it can be changed.

A small seignorage or duty upon the coinage of both gold and silver, would
probably increase still more the superiority of those metals in coin above an equal
quantity of either of them in bullion. The coinage would, in this case, increase the value
of the metal coined in proportion to the extent of this small duty, for the same reason
that the fashion increases the value of plate in proportion to the price of that fashion.
The superiority of coin above bullion would prevent the melting down of the coin,
and would discourage its exportation. If, upon any public exigency, it should become
necessary to export the coin, the greater part of it would soon return again, of its
own accord. Abroad, it could sell only for its weight in bullion. At home, it would buy
more than that weight. There would be a profit, therefore, in bringing it home again.
In France, a seignorage of about eight per cent. is imposed upon the coinage, and the
French coin, when exported, is said to return home again, of its own accord.

The occasional fluctuations in the market price of gold and silver bullion arise from

ADAM SMITH

the same causes as the like fluctuations in that of all other commodities. The frequent
loss of those metals ftom various accidents by sea and by land, the continual waste of
them in gilding and plating, in lace and embroidery, in the wear and tear of coin, and in
that of plate, require, in all countries which possess no mines of their own, a continual
importation, in order to repair this loss and this waste. The merchant importers, like all
other merchants, we may believe, endeavour, as well as they can, to suit their occasional
importations to what they judge is likely to be the immediate demand. With all their
attention, however, they sometimes overdo the business, and sometimes underdo it.
When they import more bullion than is wanted, rather than incur the risk and trouble
of exporting it again, they are sometimes willing to sell a part of it for something less
than the ordinary or average price. When, on the other hand, they import less than is
wanted, they get something more than this price. But when, under all those occasional
fluctuations, the market price either of gold or silver bullion continues for several
years together steadily and constantly, either more or less above, or more or less below
the mint price, we may be assured that this steady and constant, either superiority or
inferiority of price, is the effect of something in the state of the coin, which, at that
time, renders a certain quantity of coin either of more value or of less value than the
precise quantity of bullion which it ought to contain. The constancy and steadiness of
the effect supposes a proportionable constancy and steadiness in the cause.

The money of any particular country is, at any particular time and place, more or
less an accurate measure or value, according as the current coin is more or less exactly
agreeable to its standard, or contains more or less exactly the precise quantity of pure
gold or pure silver which it ought to contain. If in England, for example, forty-four
guineas and a half contained exactly a pound weight of standard gold, or eleven ounces
of fine gold, and one ounce of alloy, the gold coin of England would be as accurate a
measure of the actual value of goods at any particular time and place as the nature of
the thing would admit. But if, by rubbing and wearing, forty-four guineas and a half
generally contain less than a pound weight of standard gold, the diminution, however,
being greater in some pieces than in others, the measure of value comes to be liable to
the same sort of uncertainty to which all other weights and measures are commonly
exposed. As it rarely happens that these are exactly agreeable to their standard, the
merchant adjusts the price of his goods as well as he can, not to what those weights
and measures ought to be, but to what, upon an average, he finds, by experience, they
actually are. In consequence of a like disorder in the coin, the price of goods comes, in
the same manner, to be adjusted, not to the quantity of pure gold or silver which the
coin ought to contain, but to that which, upon an average, it is found, by experience, it
actually does contain.

By the money price of goods, it is to be observed, I understand always the quantity
of pure gold or silver for which they are sold, without any regard to the denomination
of the coin. Six shillings and eight pence, for example, in the time of Edward I., I
consider as the same money price with a pound sterling in the present times, because it
contained, as nearly as we can judge, the same quantity of pure silver.

THE WEALTH OF NATIONS

CHAPTER VI.

OF THE COMPONENT PART OF
THE PRICE OF COMMODITIES.

n that early and rude state of society which precedes both the accumulation of
(pa and the appropriation of land, the proportion between the quantities of labour
necessary for acquiring different objects, seems to be the only circumstance which can
afford any rule for exchanging them for one another. If among a nation of hunters,
for example, it usually costs twice the labour to kill a beaver which it does to killa deer,

one beaver should naturally exchange for or be worth two deer.

If the one species of labour should be more severe than the other, some allowance
will naturally be made for this superior hardship; and the produce of one hour’s labour
in the one way may frequently exchange for that of two hout’s labour in the other.

Or if the one species of labour requires an uncommon degree of dexterity and
ingenuity, the esteem which men have for such talents, will naturally give a value to their
produce, superior to what would be due to the time employed about it. Such talents can
seldom be alae but in je wala of long application, and th

alboagtks of this Herc for superior hardship and superior skill, are commonly made in
the wages of labour; and something of the same kind must probably have taken place
in its earliest and rudest period.

As soon as stock has accumulated in the hands of particular persons, some of
them will naturally employ it in setting to work industrious people, whom they will
supply with materials and subsistence, in order to make a profit by the sale of their
work, or by what their labour adds to the value of the materials. In exchanging the
complete manufacture either for money, for labour, or for other goods, over and above

what may be sufficient to pay the price of the materials, and the phe of the workmer

EAILU

ADAM SMITH

resolves itself in this case into two parts, of which the one pays:their wagés, the other
the profits of their employer upon the whole stock of materials and wages which he
advanced. He could have no interest to employ them, unless he expected from the sale
of their work something more than what was sufficient to replace his stock to him; and
he could have no interest to employ a great stock rather than a small one, unless his
profits were to bear some proportion to the extent of his stock.

The profits of stock, it may perhaps be thought, are only a different name for
the wages of a particular sort of labour, the labour of inspection and direction. They
ate, however, altogether different, are regulated by quite different principles, and (bear
no proportion to the quantity, the hardship, or the ingenuity of this supposed labour
of inspection and direction. They are regulated altogether by the value of the stock
employed, and are greater or smaller in proportion to the extent of this stock. Let
us suppose, for example, that in some particular place, where the ¢6mmofn annual
profits of manufacturing stock are ten per cent. there are two different manufactures,
in each of which twenty workmen are employed, at the rate of fifteen pounds a year
each, or at the expense of three hundred a-year in each manufactory. Let us suppose,
too, that the coarse materials annually wrought up in the one cost only seven hundred
pounds, while the finer materials in the other cost seven thousand) The capital annually
employed in the one will, in this case, amount only to one thousand pounds; whereas
that employed in the other will amount to seven thousand three hundred pounds. At
the rate of ten per cent. therefore, the undertaker of the one will expect a yearly profit
of about oné hundred pounds only; while that of the other will expect about seven
hundred and thirty pounds. But though their profits ate so very different, their labour
of inspection and direction may be either altogether or very nearly the same. In many
great works, almost the whole labour of this kind is committed to some principal
clerk. His wages properly express the value of this labour of inspection and direction.
Though in settling them some regard is had commonly, not only to his labour and skill,
but to the trust which is teposed in him, yet they never bear any regular proportion to
the capital of which he oversees the management, and the owner of this capital, though
he is thus discharged of almost all labour, still expects that his profit should bear a
regular proportion to his capital. In the price of commodities, therefore, the profits of
stock constitute a. component part altogether different from the wages of labour, and
regulated by quite different principles.

In this state of things, the whole produce of labour does not always belong to the
labourefHe must in most cases share it with the owner of the stock which employs
him: Neither is the quantity of labour commonly employed in acquiring or producing
any commodity, the only circumstance which can regulate the quantity which it ought
commonly to purchase, command or exchange for, An additional quantity, it is evident,
must be due for the profits of the stock which advanced the wages and furnished the
materials of that labour.

As soon as the land of any country has all become private property, the landlords,
like all other men,doyve to reap where they never sowed, and demand a rent even for its

- THE WEALTH OF NATIONS

natural. produce: The wood of the forest, the grass of the field, and all the natural fruits
of the earth, which, when land was in common, cost the labourer only the trouble of
gathering them, come, even to him, to have an additional price fixed upon them. He
must then pay for the licence to gather them, and must give up to the landlord a portion
of what his labour either collects or produces. This portion, or, what comes to the
same thing, the price of this portion, ‘constitutes the rent of land, and in the price of
the greater part of commodities, makes a third component part.

The real value‘6f all the different component parts of pricé, it must be observed,
is measured by the quantity of labour which they can, each of them, purchase or »
command.’ Labour measures the value, not only of that part of price which resolves
itself into labour, but of that which resolves itself into fent, and of that which resolves
itself into profit.

In every society, the price of every commodity finally resolves itself into some one
or other, or all. of those thtee parts;and in every improved society, all the three enter,
more or less, as component parts, into the price of the far greater part of commodities!

In the price of corn, for example, one part pays the rent of the landlord, another
pays the wages or maintenance of the labourers and labouring cattle employed in
producing it, and the third pays the profit of the farmer) These three parts seem
either immediately or ultimately to make up the whole price of corn. A fourth part,
it may perhaps be thought is necessary for replacing the stock of the farmer, or for
compensating the wear and tear of his labouring cattle, and other instruments of
husbandry. But it must be considered, that the price of any instrument of husbandry,
such as a labouring horse, is itself made up of the same time parts; the rent of the land
upon which he is reared, the labour of tending and rearing him, and the profits of the
farmer, who advances both the rent of this land, and the wages of this labour. Though
the price of the corn, therefore, may pay the price as well as the maintenance of the
horse, the whole price still resolves itself, éither immediately or ultimately, into the same
three parts of tent, labour, and profit.

In the price of flour or meal, we must add to the price of the corn, the profits of
the miller, and the wages of his servants; in the price of bread, the profits of the baker,
and the wages of his servants; and in the price of both, the labour of transporting the
corn from, the house of the farmer to that of the miller, and from that of the miller
to,thatof the baker, together with the profits of those who advance the wages of that
labour.

The price of flax resolves itself into the same three parts as that of corn. In the
price of linen we must add to this price the wages of the flax-dresser, of the spinner, of
the weaver, of the bleacher, etc. together with the profits of their respective employers.

As any particular commodity comes to be more manufactured, that part/of the
price which resolves itself into wages and profit, comes to be greater in proportion to
that which resolves itself into rent. In the progress of the manufacture, not only the
number of profits increase, but every subsequent profit is greater than the foregoing;
because the capital from which it is derived must always be greater. The capital which

ADAM SMITH

employs the weavers, for example, must be greater than that which employs the
spinners; because it not only replaces that capital with its profits, but pays, besides, the
wages of the weavers: and the profits must always bear some proportion to the capital.

In the most improved societies, however, there are always a few commodities of
which the price resolves itself. into two parts only the wages of labour, and the profits

wot. stock; and a still smaller number, in which it consists altogether in the wages of

labour, [n the price of sea-fish, for example, one part pays the labour of the fisherman,
and the other the profits of the capital employed in the fishery. Rent very seldom makes
any part of it, though it does sometimes, as I shall shew hereafter. It is otherwise, at
least through the greater part of Europe, in river fisheries. A salmon fishery pays a

ffent; and rent, though it cannot well be called the rent of land, makes a part of the

price of a salmon, as well as wares and profit. In some parts of Scotland,,a few poor

_ people make a trade of gathering, along the sea-shore, those little variegated stones

_ commonly known by the name of Scotch pebbles. The price which is paid to them by

the stone-cutter, is altogether the wages of their labour; neither*rent nor profit makes
an part of it.

But the whole price of any commodity must still finally resolve itself into some one
or other or all of those three parts; as whatever part of it remains after paying the rent
of the land, and the price of the whole labour employed in raising, manufacturing, and
bringing it to market, must necessarily be profit to somebody.

As the price or exchangeable value of every particular commodity, taken separately,
resolves itself into some one or other, or all of those three parts; so that of all the
commodities which compose the whole annual produce of the labour of every country,
taken complexly, must resolve itself into the same three parts, and be parcelled out
among different inhabitants of the country, either as the wages of their labour, the
profits of their stock, or the rent of their land. The whole of what is annually either
collected or produced by the labour of every society, or, what comes to the same
thing, the whole price of it, is in this manner originally distributed among some of its
different members. Wages, profit, and rent, are the three original sources of all revenue,
as well as of all exchangeable value. All other revenue is ultimately derived from some
one or other of these.

Whoever derives his tevenue from a fund which is his own, must draw it either

from his labour, from his stock, or from his land! The revenue derived from labour

is called wages; that derived from stock, by the person who manages or employs it, is

_called profit;that derived from it by the person who does not employ it himself, but

lendssit to another, is called the interest or the use of moneyalt is the compensation

“which the borrower pays to the lender, for the profit which he has an opportunity of

making by the usé of the money: Part of that profit naturally belongs to the borrower,
who runs the risk and takes the trouble of employing it, and part to the lender, who

_ affords him the opportunity of making this profit. The interest of money is always a
derivative revenue, which, if itds not paid from the profit which is made by the use
"ofethe money) must be paid from some other source of revenue, unless perhaps the

botrower is a spendthrift, who contracts a second debt in order to pay the interest of
the first."The revenue which proceeds altogether from land, is called rent, and belongs
to the landlord. The revenue of the farmer is derived partly from his labour, and partly
from his stock. To him, land is only the instrument which enables him to earn the
wages of this labour, and to make the profits of this stock. All taxes, and all the revenue
which is founded upon them, all salaries, pensions, and annuities of every kind, are
ultimately derived from some one or other of those three original sources of revenue,
and are paid either immediately or mediately from the wages of labour, the profits of
stock, or the rent of land.

When those three different sorts of revenue belong to different persons, they are
readily distinguished; but when they belong to the same, they are sometimes confounded
with one another, at least in common language.

A gentleman who farms a part of his own estate, after paying the expense of
cultivation, should gain both the rent of the landlord and the profit of the farmer. He
is apt to denominate, however, his whole gain, profit, and thus confounds rent with
profit, at least in common language. The greater part of our North American and West
Indian planters are in this situation. They farm, the greater part of them, their own
estates: and accordingly we seldom hear of the rent of a plantation, but frequently of
its profit.

Common farmers seldom employ any overseer to direct the general operations of
the farm. They generally, too, work a good deal with their own hands, as ploughmen,
harrowers, etc. What remains of the crop, after paying the rent, therefore, should not
only replace to them their stock employed in culttvation, together with its ordinary
profits, but pay them the wages which are due to them, both as labourers and overseets.
Whatever remains, however, after paying the rent and keeping up the stock, ‘is called
profit. But wages evidently make a part of it. The farmer, by saving these wages, must
necessarily gain them. Wages, therefore, are in this case confounded with profit.

An independent manufacturer, who has stock enough both to purchase matéfials}
and to maintain himself till he can carry his work to market, should gain both the wages
of a journeyman who works under a master, and the profit which that master makes
by the sale of that journeyman’s work. His whole gains, however, are commonly called
profit, and wages are, in this case, too, confounded with profit.

A gardener who cultivates his own garden with his own hands, unites in his own
person the three different characters, of landlord, farmer, and labourer. His produce,
therefore, should pay him the rent of the first, the,profit of the second, and the wages
ofthe third. The whole, however, is commonly considered as the earnings of his
labour. Both rentand profitare, in this case, confounded with wages,

As in a civilized country there are but few commodities of which the exchangeable
value arises from labour only, rent and profit contributing largely to that of the far
greater part of them, so the annual produce of its labour will always be sufficient to
purchase or command a much greater quantity of labour than what was employed in
raising, preparing, and bringing that produce to market. If the society were annually

ADAM SMITH

to employ all the labour which it can annually purchase, as the quantity of labour
would increase greatly every year, so the DEAT; of every ess year would be =

THE WEALTH OF NATIONS eae

CHAPTER VII.

OF THE NATURAL AND MARKET
PRICE OCOMMODITIES.

“Thigeeesan is in every society or neighbourhood an ordinary or average rate, both of

, in every different employment of labour and stock. This rate is
naturally bocce as I shall shew hereafter, partly by the general circumstances of the
society, their riches or poverty, their advancing, stationary, or declining condition, and
partly by the particular nature of each employment.

There is likewise in every society or neighbourhood an ordinary or liseapeornhG
which is regulated, too, as I shall shew hereafter, partly by the general circumstances
of the society or neighbourhood in which the land is situated, and partly by the natural
or improved fertility of the land.

These ordinary or average rates may be called the iatural rates of wages, profitand

The anieadien is a en pxeceely for eas! it is nae ae or yee zt it really costs
the person ae as it to market; for though, in common language, what is called

shen stele in some oe nen aie might ive made that profit. His prof Heads , is, his

ie, the proper fund of his s ibsistence, As, while he is preparing and bringing
the goods to ee he tats oy <men their wages, or their subsistence; so
he advances to himself, in the same manner, his own subsistence, which is generally
suitable to the profit which he may reasonably expect from the sale of his goods.
Unless they yield him this profit, therefore, they do not repay him what they may very
properly be said to have really cost him.

Though the price, therefore, which leaves him this profit, is not always the lowest
at which a dealer may sometimes sell his goods, it is the lowest at which he is likely to
sell them for any considerable time; at least where there is perfect liberty, or where he
may fgg he ny ee as oe as he pleases.

ADAM SMITH

price. It may either be above, or below, or exactly the same with its natural price.

The market price of every particular commodity is »regulated by the proportion
between the quantity which is actually brought to market, and the demand of those
who are willing to pay the natural price of the commodity, or the whole value of the
rent, labour, and profit, which must be paid in order to bring it thither. Such people
may be called the effectual demanders, and their demand the effectual demand; since it
maybe sufficient to effectuate the bringing of the commodity to market. It is different
from the absolute demand. A very poor man may be said, in some sense, to have a
demand for a coach and six; he might like to have it; but his demand is not an effectual
demand, as the commodity can never be brought to market in order to satisfy it.

When the quantity of any commodity which is brought to market falls short of the
effectual demand, all those who are willing to pay the whole value of the rent, wages,
and profit, which must be paid in order to bring it thither, cannot be supplied with the
quantity which they want. Rather than want it altogether, some of them will be willing
to give more. A competition will immediately begin among them, and the market
price will rise more or less above the natural price, according as either the greatness
of the deficiency, or the wealth and wanton luxury of the competitors, happen to
animate more or less the eagerness of the competition. Among competitors of equal
wealth and luxury, the same deficiency will generally occasion a more or less eager
competition, according as the acquisition of the commodity happens to be of more or
less importance to them. Hence the exorbitant price of the necessaries of life during
the blockade of a town, or in a famine.

When the quantity brought to market exceeds the effectual demand, it cannot be
all sold to those who are willing to pay the whole value of the rent, wages, and profit,
which must be paid in order to bring it thither. Some part must be sold to those who
are willing to pay less, and the low price which they give for it must reduce the price of
the whole. The market price will sink more or less below the natural price, according
as the greatness of the excess increases more or less the competition of the sellers, or
according as it happens to be more or less important to them to get immediately rid
of the commodity, The same excess in the importation of perishable;pwill occasion a
much greater competition than in that of durable commodities; in the importation of
oranges, for example, than in that of old iron.

When the quantity brought to market is just sufficient to supply the effectual
demand, and no more, the market price naturally comes to be either exactly, or as nearly
as can be judged of, the same with the natural price. The whole quantity upon hand can
be disposed of for this price, and can not be disposed of for more. The competition of
the different dealers obliges them all to accept of this price, but does not oblige them
to accept of less.

The quantity of every commodity brought to market naturally suits itself to the
effectual demand. It is the interest of all those who employ their land, labour, or
Stock, in bringing any commodity to market, that the quantity never should exceed the
effectual demand; and it is the interest of all other people that it never should fall short

oo THE WEALTH OF NATIONS

of that demand.

If at any time it exceeds the effectual demand, some of the component parts of its
price must be paid below their natural rate. If it is rent, the interest of the landlords will
immediately prompt them to withdraw a part of their land; and if it is wages or profit,
the interest of the labourers in the one case, and of their employers in the other, will
prompt them to withdraw a part of their labour or stock, from this employment. The
quantity brought to market will soon be no more than sufficient to supply the effectual
demand. All the different parts of its price will rise to their natural rate, and the whole
price to its natural price.

If, on the contrary, the quantity brought to market should at any time fall short of
the effectual demand, some of the component parts of its price must rise above their
natural rate. If it is rent, the interest of all other landlords will naturally prompt them,to
prepare more land for the raising of this commodity; if it is wages or profit, the interest
of all other labourers and dealers will soon prompt them to employ more labour and
stock in preparing and bringing it to market. The quantity brought thither will soon be
sufficient to supply the effectual demand. All the different parts of its price will soon
sink to their natural rate, and the whole price to its natural price.

The natural price, therefore, is, as it were, the central price, to which the prices of
all commodities are continually gravitating. Different accidents may sometimes keep
them suspended a good deal above it, and sometimes force them down even somewhat
below it: But whatever may be the obstacles which hinder them from settling in this
centre of repose and continuance, they are constantly tending towards it.

The whole quantity of industry annually employed in order to bring any commodity
to market, naturally suits itself in this manner to the effectual demand. It naturally aims
at bringing always that precise quantity thither which may be sufficient to supply, and
no more than supply, that demand.

But, in some employments, the same quantity of industry will, in different years,
produce very different quantities of commodities; while, in others, it will produce always
the same, or very nearly the same. The same number of labourers in husbandry will, in
different years, produce very different quantities of corn, wine, oil, hops, etc. But the
same number of spinners or weavers will every year produce the same, or very nearly
the same, quantity of linen and woollen cloth. It is only the avetage produce of the oné
species of industry which can be suited, in any respect, to the effectual demand; and as
its actual produce is frequently much greater, and frequently much less, than its average
produce, the quantity of the commodities brought to market will sometimes exceed a
good deal, and sometimes fall short a good deal, of the effectual demand. Even though
that demand, therefore, should continue always the same, their market price will be
liable to great fluctuations, will sometimes fall a good deal below, and sometimes rise
a good deal above, their natural price. Inthe other species of industry, the produce
of equal quantities of labour being always the same, or very nearly the same, it can be
more exactly suited to the effectual demand. While that demand continues the same,
therefore, the market price of the commodities is likely to do so too, and to be either

ADAM SMITH

altogether, or as nearly as can be judged of, the same with the natural price. That the
price of linen and woollen cloth is liable neither to such frequent, nor to such great
variations, as the price of corn, every man’s experience will inform him. The price of
the one species of commodities vaties only with the variations in the demand; that of
the other varies not only with the variations in the demand, but with the much greater,
and more frequent, variations in the quantity of what is brought to market, in order to
supply that demand.

The occasional and temporary fluctuations in the market price of any commodity
fall chiefly upon those parts of its price which resolve themselves into wages and profit.
That part which resolves itself into rent is less affected by them. A rent certain in
money is not in the least affected by them, either in its rate or in its value. A rent which
consists either in a certain proportion, or in a certain quantity, of the rude produce, is
no doubt affected in its yearly value by all the occasional and temporary fluctuations
in the market price of that rude produce; but it is seldom affected by them in its yearly
rate. In settling the terms of the lease, the landlord and farmer endeavour, according to
their best judgment, to adjust that rate, not to the temporary and occasional, but to the
average and ordinary price of the produce.

Such fluctuations affect both the value and the rate, either of wages or of profit,
according as the market happens to be either overstocked or understocked with
commodities or with labour, with work done, or with work to be done. A public
mourning raises the price of black cloth ( with which the market is almost always
understocked upon such occasions), and augments the profits of the merchants who
possess any considerable quantity of it. It has no effect upon the wages of the weavers.
The market is understocked with commodities, not with labour, with work done, not
with work to be done. It raises the wages of journeymen tailors. The market is here
understocked with labour. There is an effectual demand for more labour, for more
work to be done, than can be had. It sinks the price of coloured silks and cloths,
and thereby reduces the profits of the merchants who have any considerable quantity
of them upon hand. It sinks, too, the wages of the workmen employed in preparing
such commodities, for which all demand is stopped for six months, perhaps for a
twelvemonth. The market is here overstocked both with commodities and with labour.

But though the market price of every particular commodity is in this manner
continually gravitating, if one may say so, towards the natural price; yet sometimes
particular accidents, sometimes natural causes, and sometimes particular regulations of
policy, may, in many commodities, keep up the market price, for a long time together, a
good deal above the natural price.

When, by an increase in the effectual demand, the market price of some particular
commodity happens to rise a good deal above the natural price, those who employ their
stocks in supplying that market, are generally careful to conceal this change, If it was
commonly known, their great profit would tempt so many new rivals to employ theit
stocks in the same way, that, the effectual demand being fully supplied, the market price
would soon be reduced to the natutal price, and, perhaps, for some time even below it.

THE WEALTH OF NATIONS —

If the market is at a great distance from the residence of those who supply it, they may
sometimes be able to keep the secret for several years together, and may so long enjoy
their extraordinary profits without any new rivals. Secrets of this kind, however, it must
be acknowledged, can seldom be long kept; and the extraordinary profit can last very
little longer than they are kept.

Séctets in manufactures are capable of being longer kept than secrets in trade. A
dyer who has found the means of producing a particular colour with materials which
cost only half the price of those commonly made use of, may, with good management,
enjoy the advantage of his discovery as long as he lives, and even leave it as a legacy
to his posterity. His extraordinary gains arise from the high price which is paid for his
private labour. They properly consist in the high wages of that labour. But as they ate
repeated upon every part of his stock, and as their whole amount bears, upon that
account, a regular proportion to it, they are commonly considered as extraordinary
profits of stock.

Such enhancements of the market price are evidently the effects of particular
accidents, of which, however, the operation may sometimes last for many years together.

Some natural productions require such a singularity of soil and situation, that all
the land in a great country, which is fit for producing them, may not be sufficient to
supply the effectual demand. The whole quantity brought to market, therefore, may
be disposed of to those who are willing to give more than what is sufficient to pay the
rent of the land which produced them, together with the wages of the labour and the
profits of the stock which were employed in preparing and bringing them to market,
according to their natural rates. Such commodities may continue for whole centuries
together to be sold at this high price; and that part of it which resolves itself into
the rent of land, is in this case the part which is generally paid above its natural rate.
The rent of the land which affords such singular and esteemed productions, like the
rent of some vineyards in France of a peculiarly happy soil and situation, bears no
regular proportion to the rent of other equally fertile and equally well cultivated land
in its neighbourhood. The wages of the labour, and the profits of the stock employed
in bringing such commodities to market, on the contrary, are seldom out of their
natural proportion to those of the other employments of labour and stock in their
neighbourhood.

Such enhancements of the market price are evidently the effect of natural causes,
which may hinder the effectual demand from ever being fully supplied, and which may
continue, therefore, to operate for ever.

A monopoly granted either to an individual or to a trading company, has the same
effect as a secret in trade or manufactures. The monopolists, by keeping the market
constantly understocked by never fully supplying the effectual demand, sell: their
commodities much above the natural price, and raise their emoluments, whether they,
consist in wages or profit, greatly above their natural rate.

The price of monopoly is upon every occasion the highest which can be got. The
natural price, or the price of free competition, on the contrary, is the lowest which can

ADAM SMITH

not upon every occasion indeed, but for any considerable time together. The
one 1s upon every occasion the highest which can be squeezed out of the oo or
which it is supposed: they will consent to dive the oo ee vhick

saad i

1 sceshi ip,and all aN’
estrain in particular employment s, the competition to a smaller number’
than Bight eee go into here have are same tendency, though in a less degree.
They are a sort of enlargec nopolies, and ee frequently, for ages together, and in
whole classes of eo paynents nar.

above the natural iis the our at
ployed above their natural ra Taiee
ements 1e 1¥ ice may ; last as lo long as the regulations of
policy which give occasion to them.
The market price of any particular commodity, though it may continue long above,
can seldom continue long below, its natural price. Whatever part of it was paid below
the natural rate, the persons whose interest it affected would immediately feel the loss,
and would immediately withdraw either so much land or no much labour, or so much
stock, from being employed about it, that the quantity brought to market would soon
price, therefore,

be no more than sufficient to supply the effectual demand. Its market

would soon rise to the natural price; tl

The same statutes of apprenticeship and other corporation laws, indeed, which,

sometimes oblige him, at it a to let them ee a good

deal below it. As in the one case they exclude many people from his employment, so in
the other they exclude him from many employments. The effect of such regulations,

however, is not near so durable in sinking the workman’s wages below, as in raising
them above their natural rate. Their operation in the one way may endure for many
centuries, but in the other it can last no longer than the lives of some of the workmen
its "ED When an are ae the

who were bred to the business in the tim

The policy must * as S leat as one of Tae or ancient

pala was bound by a principle of religion to follow the occupation
of his father, and was supposed to commit the most horrid sacrilege if he changed
it for another), which can in any particular employment, and for several generations
together, sink either the wages of labour or the profits of stock below their natural rate.

This is all that I think necessary to be observed at present concerning the deviations,
whether occasional or permanent, of the market price of commodities from the natural

price.

The natural price itself varies with the natural rate of each of its component
parts, of wages, profit, and rent; and in every society this rate varies according to their
circumstances, according to their riches or poverty, their advancing, stationary, or

\ THE WEALTH OF NATIONS

declining condition. I shall, in the four following chapters, endeavour to explain, as
fully and distinctly as I can, the causes of those different variations.

First, I shall endeavour to explain what are the circumstances which naturally
determine the rate of wages, and in what manner those circumstances are affected by
the riches or poverty, by the advancing, stationary, or declining state of the society.

Secondly, I shall endeavour to shew what are the circumstances which naturally
determine the rate of profit; and in what manner, too, those circumstances are affected
by the like variations in the state of the society.

The ee wages and profit are very different in the different employments
of labour and stock; yet a certain proportion seems commonly to take place between
both the pecuniary wages in all the different employments of labour, and the pecuniary
profits in all the different employments of stock. This proportion, it will appear
hereafter, depends partly upon the nature of the different employments, and partly
upon the different laws and policy of the society in which they are carried on. But
though in many respects dependent upon the laws and policy, this proportion seems to
be little affected by the riches or poverty of that society, by its advancing, stationary, or
declining condition, but to remain the same, or very nearly the same, in all those different

states. I shall, in the third place, endeavour to explain all the different circumstances
which regulate this proportion.

In the fourth and last place, I shall endeavour to shew what are the circumstances
which regulate the rent of land, and which either raise or lower the real price of all the
different substances which it produces.

ADAM SMITH

CHAPTER VIII.
OF THE WAGES OF LABOUR.

he produce of labour constitutes the natural recompence or wages of labour.

In that original state of things which precedes both the appropriation of land

and the accumulation of stock, the whole produce of labour belongs to the labourer.
He has neither landlord nor master to share with him.

Had this state continued, the wages of labour would have augmented with all those
improvements in its productive powers, to which the division of labour gives occasion.
All things would gradually have become cheaper. They would have been produced by
a smaller quantity of labour; and as the commodities produced by equal quantities of
labour would naturally in this state of things be exchanged for one another, they would
have been purchased likewise with the produce of a smaller quantity.

But though all things would have become cheaper in reality, in appearance many
things might have become dearer, than before, or have been exchanged for a greater
quantity of other goods. Let us suppose, for example, that in the greater part of
employments the productive powers of labour had been improved to tenfold, or that a
day’s labour could produce ten times the quantity of work which it had done originally;
but that in a particular employment they had been improved only to double, or that a
day’s labour could produce only twice the quantity of work which it had done before.
In exchanging the produce of a day’s labour in the greater part of employments for
that of a day’s labour in this particular one, ten times the original quantity of work in
them would purchase only twice the original quantity in it. Any particular quantity in
it, therefore, a pound weight, for example, would appear to be five times dearer than
before. In reality, however, it would be twice as cheap. Though it required five times
the quantity of other goods to purchase it, it would require only half the quantity of
labour either to purchase or to produce it. The acquisition, therefore, would be twice
as easy as before.

But this original state of things, in which the labourer enjoyed t
of his own labour, could not last beyond the
It was at an end, therefore, long before the

whole produce

most considerable improvements were made in the productive powers of labour; and
it would be to no purpose to trace further what might have been its effects upon the

, the landlord demands a share of almost

. His rent makes the

recompence or wages of labour.

first deduction from the produce of the labour which is employed upon land.

THE WEALTH OF NATIONS

It seldom happens that the person who tills the ground has wherewithal to maintain
himself till he reaps the harvest. His maintenance is generally advanced to him from
the stock of a master, the farmer who employs him, and who would have no interest
to employ him, unless he was to share in the produce of his labour, or unless his stock
was to be replaced to him with a profit. This profit makes a second deduction from the
produce of the labour which is employed upon land.

The produce of almost all other labour is liable to the like deduction of profit. In
all arts and manufactures, the greater part of the workmen stand in need of a master,
to advance them the materials of their work, and their wages and maintenance, till it be
completed. He shares in the produce of their labour, or in the value which it adds to the
materials upon which it is bestowed; and in this share consists his profit.

It sometimes happens, indeed, that a single independent workman has stock
sufficient both to purchase the materials of his work, and to maintain himself till it be
completed. He is both master and workman, and enjoys the whole produce of his own
labour, or the whole value which it adds to the materials upon which it is bestowed. It
includes what are usually two distinct revenues, belonging to two distinct persons, the
profits of stock, and the wages of labour.

Such cases, however, ate not very frequent; and in every part of Europe twenty
workmen serve under a master for one that is independent, and the wages of labour are
everywhere understood to be, what they usually are, when the labourer is one person,
and the owner of the stock which employs him another.

What are the common wages of labour, depends everywhere upon the contract
usually made between those two parties, whose interests are by no means the same. The
workmen desire to get as much, the masters to give as little, as possible. The former are
disposed to combine in order to raise, the latter in order to lower, the wages of labout.

Itis not, however, difficult to foresee which of the two parties must, upon all ordinary
occasions, have the advantage in the dispute, and force the other into a compliance with
their terms. The masters, being fewer in number, can combine much mote easily: and
the law, besides, authorises, or at least does not prohibit, their combinations, while it
prohibits those of the workmen. We have no acts of parliament against combining to
lower the price of work, but many against combining to raise it. In all such disputes,
the masters can hold out much longer. A landlord, a farmer, a master manufacturer,
or merchant, though they did not employ a single workman, could generally live a year
or two upon the stocks, which they have already acquired. Many workmen could not
subsist a week, few could subsist a month, and scarce any a year, without employment.
In the long run, the workman may be as necessary to his master as his master is to him;
but the necessity is not so immediate.

We rarely hear, it has been said, of the combinations of masters, though frequently
of those of workmen. But whoever imagines, upon this account, that masters rarely
combine, is as ignorant of the world as of the subject. Masters are always and everywhere
in a sort of tacit, but constant and uniform, combination, not to raise the wages
of labour above their actual rate. To violate this combination is everywhere a most

ADAM SMITH

unpopular action, and a sort of reproach to a master among his neighbours and equals.
We seldom, indeed, hear of this combination, because it is the usual, and, one may say,
the natural state of things, which nobody ever hears of. Masters, too, sometimes enter
into particular combinations to sink the wages of labour even below this rate. These
are always conducted with the utmost silence and secrecy till the moment of execution;
and when the workmen yield, as they sometimes do without resistance, though severely
felt by them, they are never heard of by other people. Such combinations, however,
are frequently resisted by a contrary defensive combination of the workmen, who
sometimes, too, without any provocation of this kind, combine, of their own accord,
to raise the price of their labour. Their usual pretences are, sometimes the high price
of provisions, sometimes the great profit which their masters make by their work. But
whether their combinations be offensive or defensive, they are always abundantly heard
of. In order to bring the point to a speedy decision, they have always recourse to the
loudest clamour, and sometimes to the most shocking violence and outrage. They are
desperate, and act with the folly and extravagance of desperate men, who must either
starve, or frighten their masters into an immediate compliance with their demands. The
masters, upon these occasions, are just as clamorous upon the other side, and never
cease to call aloud for the assistance of the civil magistrate, and the rigorous execution
of those laws which have been enacted with so much severity against the combination
of servants, labourers, and journeymen. The workmen, accordingly, very seldom derive
any advantage from the violence of those tumultuous combinations, which, partly
from the interposition of the civil magistrate, partly from the superior steadiness of
the masters, partly from the necessity which the greater part of the workmen are under
of submitting for the sake of present subsistence, generally end in nothing but the
punishment or ruin of the ringleaders.

But though, in disputes with their workmen, masters must generally have the
advantage, there is, however, a certain rate, below which it seems impossible to reduce,
for any considerable time, the ordinary wages even of the lowest species of labour.

A man must always live by his work, and his wages must at least be sufficient to
maintain him. They must even upon most occasions be somewhat more, otherwise it
would be impossible for him to bring up a family, and the race of such workmen could
not last beyond the first generation. Mr Cantillon seems, upon this account, to suppose
that the lowest species of common labourers must everywhere earn at least double
their own maintenance, in order that, one with another, they may be enabled to bring
up two children; the labour of the wife, on account of her necessary attendance on the
children, being supposed no more than sufficient to provide for herself: But one half the
children born, it is computed, die before the age of manhood. The poorest labourers,
therefore, according to this account, must, one with another, attempt to rear at least
four children, in order that two may have an equal chance of living to that age. But the
necessary maintenance of four children, it is supposed, may be nearly equal to that of
one man. The labour of an able-bodied slave, the same author adds, is computed to
be worth double his maintenance; and that of the meanest labourer, he thinks, cannot

THE WEALTH OF NATIONS

be worth less than that of an able-bodied slave. Thus far at least seems certain, that,
in order to bring up a family, the labour of the husband and wife together must, even
in the lowest species of common labour, be able to earn something more than what is
precisely necessary for their own maintenance; but in what proportion, whether in that
above-mentioned, or many other, I shall not take upon me to determine.

There are certain circumstances, however, which sometimes give the labourers an
advantage, and enable them to raise their wages considerably above this rate, evidently
the lowest which is consistent with common humanity.

When in any country the demand for those who live by wages, labourers, journeymen,
servants of every kind, is continually increasing; when every year furnishes employment
for a greater number than had been employed the year before, the workmen have no
occasion to combine in order to raise their wages. The scarcity of hands occasions a
competition among masters, who bid against one another in order to get workmen, and
thus voluntarily break through the natural combination of masters not to raise wages.
The demand for those who live by wages, it is evident, cannot increase but in proportion
to the increase of the funds which are destined to the payment of wages. These funds
are of two kinds, first, the revenue which is over and above what is necessary for the
maintenance; and, secondly, the stock which is over and above what is necessary for the
employment of their masters.

When the landlord, annuitant, or monied man, has a greater revenue than what he
judges sufficient to maintain his own family, he employs either the whole or a part of
the surplus in maintaining one or more menial servants. Increase this surplus, and he
will naturally increase the number of those servants.

When an independent workman, such as a weaver or shoemaker, has got more
stock than what is sufficient to purchase the materials of his own work, and to maintain
himself till he can dispose of it, he naturally employs one or more journeymen with
the surplus, in order to make a profit by their work. Increase this surplus, and he will
naturally increase the number of his journeymen.

The demand for those who live by wages, therefore, necessarily increases with
the increase of the revenue and stock of every country, and cannot possibly increase
without it. The increase of revenue and stock is the increase of national wealth. The
demand for those who live by wages, therefore, naturally increases with the increase of
national wealth, and cannot possibly increase without it.

It is not the actual greatness of national wealth, but its continual increase, which
occasions a rise in the wages of labour. It is not, accordingly, in the richest countries,
but in the most thriving, or in those which are growing rich the fastest, that the wages
of labour are highest. England is certainly, in the present times, a much richer country
than any part of North America. The wages of labour, however, are much higher in
North America than in any part of England. In the province of New York, common
labourers earned in 1773, before the commencement of the late disturbances, three
shillings and sixpence currency, equal to two shillings sterling, a-day; ship-carpenters,
ten shillings and sixpence currency, with a pint of rum, worth sixpence sterling, equal in

ADAM SMITH

all to six shillings and sixpence sterling; house-carpenters and bricklayers, eight shillings
currency, equal to four shillings and sixpence sterling; journeymen tailors, five shillings
currency, equal to about two shillings and tenpence sterling. These prices are all above
the London price; and wages are said to be as high in the other colonies as in New
York. The price of provisions is everywhere in North America much lower than in
England. A dearth has never been known there. In the worst seasons they have always
had a sufficiency for themselves, though less for exportation. If the money price of
labour, therefore, be higher than it is anywhere in the mother-country, its real price,
the real command of the necessaries and conveniencies of life which it conveys to the
labourer, must be higher in a still greater proportion.

But though North America is not yet so rich as England, it is much more thriving,
and advancing with much greater rapidity to the further acquisition of riches. The
most decisive mark of the prosperity of any country is the increase of the number
of its inhabitants. In Great Britain, and most other European countries, they are not
supposed to double in less than five hundred years. In the British colonies in North
America, it has been found that they double in twenty or five-and-twenty years. Nor
in the present times is this increase principally owing to the continual importation of
new inhabitants, but to the great multiplication of the species. Those who live to old
age, it is said, frequently see there from fifty to a hundred, and sometimes many more,
descendants from their own body. Labour is there so well rewarded, that a numerous
family of children, instead of being a burden, is a source of opulence and prosperity
to the parents. The labour of each child, before it can leave their house, is computed
to be worth a hundred pounds clear gain to them. A young widow with four or five
young children, who, among the middling or inferior ranks of people in Europe, would
have so little chance for a second husband, is there frequently courted as a sort of
fortune. The value of children is the greatest of all encouragements to marriage. We
cannot, therefore, wonder that the people in North America should generally marry
very young, Notwithstanding the great increase occasioned by such early marriages,
there is a continual complaint of the scarcity of hands in North America. The demand
for labourers, the funds destined for maintaining them increase, it seems, still faster
than they can find labourers to employ.

Though the wealth of a country should be very great, yet if it has been long
stationary, we must not expect to find the wages of labour very high in it. The funds
destined for the payment of wages, the revenue and stock of its inhabitants, may be of
the greatest extent; but if they have continued for several centuries of the same, or very
nearly of the same extent, the number of labourers employed every year could easily
supply, and even more than supply, the number wanted the following year. There could
seldom be any scarcity of hands, nor could the masters be obliged to bid against one
another in order to get them. The hands, on the contrary, would, in this case, naturally
multiply beyond their employment. There would be a constant scarcity of employment,
and the labourers would be obliged to bid against one another in order to get it. If in
such a country the wages off labour had ever been more than sufficient to maintain

ay)

THE WEALTH OF NATIONS

the labourer, and to enable him to bring up a family, the competition of the labourers
and the interest of the masters would soon reduce them to the lowest rate which is
consistent with common humanity. China has been long one of the richest, that is, one
of the most fertile, best cultivated, most industrious, and most populous, countries in
the world. It seems, however, to have been long stationary. Marco Polo, who visited it
more than five hundred years ago, describes its cultivation, industry, and populousness,
almost in the same terms in which they are described by travellers in the present times.
It had, perhaps, even long before his time, acquired that full complement of riches
which the nature of its laws and institutions permits it to acquire. The accounts of all
travellers, inconsistent in many other respects, agree in the low wages of labour, and
in the difficulty which a labourer finds in bringing up a family in China. If by digging
the ground a whole day he can get what will purchase a small quantity of rice in the
evening, he is contented. The condition of artificers is, if possible, still worse. Instead
of waiting indolently in their work-houses for the calls of their customers, as in Europe,
they are continually running about the streets with the tools of their respective trades,
offering their services, and, as it were, begging employment. The poverty of the lower
ranks of people in China far surpasses that of the most beggarly nations in Europe.
In the neighbourhood of Canton, many hundred, it is commonly said, many thousand
families have no habitation on the land, but live constantly in little fishing-boats upon
the rivers and canals. The subsistence which they find there is so scanty, that they are
eager to fish up the nastiest garbage thrown overboard from any European ship. Any
carrion, the carcase of a dead dog or cat, for example, though half putrid and stinking,
is as welcome to them as the most wholesome food to the people of other countries.
Marriage is encouraged in China, not by the profitableness of children, but by the
liberty of destroying them. In all great towns, several are every night exposed in the
street, or drowned like puppies in the water. The performance of this horrid office is
even said to be the avowed business by which some people earn their subsistence.

China, however, though it may, perhaps, stand still, does not seem to go backwards.
Its towns are nowhere deserted by their inhabitants. The lands which had once been
cultivated, are nowhere neglected. The same, or very nearly the same, annual labour,
must, therefore, continue to be performed, and the funds destined for maintaining
it must not, consequently, be sensibly diminished. The lowest class of labourers,
therefore, notwithstanding their scanty subsistence, must some way or another make
shift to continue their race so far as to keep up their usual numbers.

But it would be otherwise in a country where the funds destined for the
maintenance of labour were sensibly decaying, Every year the demand for servants and
labourers would, in all the different classes of employments, be less than it had been
the year before. Many who had been bred in the superior classes, not being able to find
employment in their own business, would be glad to seek it in the lowest. The lowest
class being not only overstocked with its own workmen, but with the overflowings
of all the other classes, the competition for employment would be so great in it, as
to reduce the wages of labour to the most miserable and scanty subsistence of the

ADAM SMITH

labourer. Many would not be able to find employment even upon these hard terms,
but would either starve, or be driven to seek a subsistence, either by begging, or by
the perpetration perhaps, of the greatest enormities. Want, famine, and mortality,
would immediately prevail in that class, and from thence extend themselves to all the
superior classes, till the number of inhabitants in the country was reduced to what
could easily be maintained by the revenue and stock which remained in it, and which
had escaped either the tyranny or calamity which had destroyed the rest. This, perhaps,
is nearly the present state of Bengal, and of some other of the English settlements in
the East Indies. In a fertile country, which had before been much depopulated, where
subsistence, consequently, should not be very difficult, and where, notwithstanding,
three or four hundred thousand people die of hunger in one year, we maybe assured
that the funds destined for the maintenance of the labouring poor are fast decaying.
The difference between the genius of the British constitution, which protects and
governs North America, and that of the mercantile company which oppresses and
domineers in the East Indies, cannot, perhaps, be better illustrated than by the different
state of those countries.

The liberal reward of labour, therefore, as it is the necessary effect, so it is the natural
symptom of increasing national wealth. The scanty maintenance of the labouring poor,
on the other hand, is the natural symptom that things are at a stand, and their starving
condition, that they are going fast backwards.

In Great Britain, the wages of labour seem, in the present times, to be evidently
more than what is precisely necessary to enable the labourer to bring up a family. In
order to satisfy ourselves upon this point, it will not be necessary to enter into any
tedious or doubtful calculation of what may be the lowest sum upon winch it is possible
to do this. There are many plain symptoms, that the wages of labour are nowhere in
this country regulated by this lowest rate, which is consistent with common humanity.

First, in almost every part of Great Britain there is a distinction, even in the lowest
species of labour, between summer and winter wages. Summer wages are always highest.
But, on account of the extraordinary expense of fuel, the maintenance of a family ts
most expensive in winter. Wages, therefore, being highest when this expense is lowest,
it seems evident that they are not regulated by what is necessary for this expense, but
by the quantity and supposed value of the work. A labourer, it may be said, indeed,
ought to save part of his summer wages, in order to defray his winter expense; and
that, through the whole year, they do not exceed what is necessary to maintain his
family through the whole year. A slave, however, or one absolutely dependent on us
for immediate subsistence, would not be treated in this manner. His daily subsistence
would be proportioned to his daily necessities.

Secondly, the wages of labour do not, in Great Britain, fluctuate with the price of
provisions. These vary everywhere from year to year, frequently from month to month.
But in many places, the money price of labour remains uniformly the same, sometimes
for half a century together. If, in these places, therefore, the labouring poor can maintain
their families in dear years, they must be at their ease in times of moderate plenty, and

THE WEALTH OF NATIONS

in affluence in those of extraordinary cheapness. The high price of provisions during
these ten years past, has not, in many parts of the kingdom, been accompanied with
any sensible rise in the money price of labour. It has, indeed, in some; owing, probably,
more to the increase of the demand for labour, than to that of the price of provisions.

Thirdly, as the price of provisions varies more from year to year than the wages
of labour, so, on the other hand, the wages of labour vary more from place to place
than the price of provisions. The prices of bread and butchers’ meat are generally the
same, or very nearly the same, through the greater part of the united kingdom. These,
and most other things which are sold by retail, the way in which the labouring poor buy
all things, are generally fully as cheap, or cheaper, in great towns than in the remoter
parts of the country, for reasons which I shall have occasion to explain hereafter. But
the wages of labour in a great town and its neighbourhood, are frequently a fourth or
a fifth part, twenty or five-and—twenty per cent. higher than at a few miles distance.
Eighteen pence a day may be reckoned the common price of labour in London and its
neighbourhood. At a few miles distance, it falls to fourteen and fifteen pence. Tenpence
may be reckoned its price in Edinburgh and its neighbourhood. At a few miles distance,
it falls to eightpence, the usual price of common labour through the greater part of
the low country of Scotland, where it varies a good deal less than in England. Such a
difference of prices, which, it seems, is not always sufficient to transport a man from
one parish to another, would necessarily occasion so great a transportation of the most
bulky commodities, not only from one parish to another, but from one end of the
kingdom, almost from one end of the world to the other, as would soon reduce them
more nearly to a level. After all that has been said of the levity and inconstancy of
human nature, it appears evidently from experience, that man is, of all sorts of luggage,
the most difficult to be transported. If the labouring poor, therefore, can maintain their
families in those parts of the kingdom where the price of labour is lowest, they must
be in affluence where it is highest.

Fourthly, the variations in the price of labour not only do not correspond, either
in place or time, with those in the price of provisions, but they are frequently quite
opposite.

Grain, the food of the common people, is dearer in Scotland than in England,
whence Scotland receives almost every year very large supplies. But English corn must
be sold dearer in Scotland, the country to which it is brought, than in England, the
country from which it comes; and in proportion to its quality it cannot be sold dearer
in Scotland than the Scotch corn that comes to the same market in competition with
it. The quality of grain depends chiefly upon the quantity of flour or meal which it
yields at the mill; and, in this respect, English grain is so much superior to the Scotch,
that though often dearer in appearance, or in proportion to the measure of its bulk, it
is generally cheaper in reality, or in proportion to its quality, or even to the measure of
its weight. The price of labour, on the contrary, is dearer in England than in Scotland.
If the labouring poor, therefore, can maintain their families in the one part of the
united kingdom, they must be in affluence in the other. Oatmeal, indeed, supplies the

ADAM SMITH

common people in Scotland with the greatest and the best part of their food, which
is, in general, much inferior to that of their neighbours of the same rank in England.
This difference, however, in the mode of their subsistence, is not the cause, but the
effect, of the difference in their wages; though, by a strange misapprehension, I have
frequently heard it represented as the cause. It is not because one man keeps a coach,
while his neighbour walks a-foot, that the one is rich, and the other poor; but because
the one is rich, he keeps a coach, and because the other is poor, he walks a-foot.
During the course of the last century, taking one year with another, grain was
dearer in both parts of the united kingdom than during that of the present. This is a
matter of fact which cannot now admit of any reasonable doubt; and the proof of it is,
if possible, still more decisive with regard to Scotland than with regard to England. It is
in Scotland supported by the evidence of the public fiars, annual valuations made upon
oath, according to the actual state of the markets, of all the different sorts of grain in
every different county of Scotland. If such direct proof could require any collateral
evidence to confirm it, | would observe, that this has likewise been the case in France,
and probably in most other parts of Europe. With regard to France, there is the clearest
proof. But though it is certain, that in both parts of the united kingdom grain was
somewhat dearer in the last century than in the present, it is equally certain that labour
was much cheaper. If the labouring poor, therefore, could bring up their families then,
they must be much mote at their ease now. In the last century, the most usual day-wages
of common labour through the greater part of Scotland were sixpence in summer, and
fivepence in winter. Three shillings a-week, the same price, very nearly still continues
to be paid in some parts of the Highlands and Western islands. Through the greater
part of the Low country, the most usual wages of common labour are now eight pence
a-day; tenpence, sometimes a shilling, about Edinburgh, in the counties which border
upon England, probably on account of that neighbourhood, and in a few other places
where there has lately been a considerable rise in the demand for labour, about Glasgow,
Carron, Ayrshire, etc. In England, the improvements of agriculture, manufactures,
and commerce, began much earlier than in Scotland. The demand for labour, and
consequently its price, must necessarily have increased with those improvements. In
the last century, accordingly, as well as in the present, the wages of labour were higher
in England than in Scotland. They have risen, too, considerably since that time, though,
on account of the greater variety of wages paid there in different places, it is more
difficult to ascertain how much. In 1614, the pay of a foot soldier was the same as in
the present times, eightpence a-day. When it was first established, it would naturally be
regulated by the usual wages of common labourers, the rank of people from which
foot soldiers ate commonly drawn. Lord-chief-justice Hales, who wrote in the time
of Charles II. computes the necessary expense of a labourer’s family, consisting of six
persons, the father and mother, two children able to do something, and two not able,
at ten shillings a-week, or twenty-six pounds a-year. If they cannot earn this by their
labour, they must make it up, he supposes, either by begging or stealing. He appears
to have enquired very carefully into this subject {See his scheme for the maintenance

THE WEALTH OF NATIONS

of the poor, in Burn’s History of the Poor Laws.}. In 1688, Mr Gregory King, whose
skill in political arithmetic is so much extolled by Dr Davenant, computed the ordinary
income of labourers and out-servants to be fifteen pounds a-year to a family, which
he supposed to consist, one with another, of three and a half persons. His calculation,
therefore, though different in appearance, corresponds very nearly at bottom with that
of Judge Hales. Both suppose the weekly expense of such families to be about twenty-
pence a-head. Both the pecuniary income and expense of such families have increased
considerably since that time through the greater part of the kingdom, in some places
more, and in some less, though perhaps scarce anywhere so much as some exaggerated
accounts of the present wages of labour have lately represented them to the public. The
price of labour, it must be observed, cannot be ascertained very accurately anywhere,
different prices being often paid at the same place and for the same sort of labour, not
only according to the different abilities of the workman, but according to the easiness
or hardness of the masters. Where wages are not regulated by law, all that we can
pretend to determine is, what are the most usual; and experience seems to shew that
law can never regulate them properly, though it has often pretended to do so.

The teal recompence of labour, the real quantity of the necessaries and
conveniencies of life which it can procure to the labourer, has, during the course of
the present century, increased perhaps in a still greater proportion than its money price.
Not only grain has become somewhat cheaper, but many other things, from which the
industrious poor derive an agreeable and wholesome variety of food, have become a
great deal cheaper. Potatoes, for example, do not at present, through the greater part
of the kingdom, cost half the price which they used to do thirty or forty years ago. The
same thing may be said of turnips, carrots, cabbages; things which were formerly never
raised but by the spade, but which are now commonly raised by the plough. All sort of
garden stuff, too, has become cheaper. The greater part of the apples, and even of the
onions, consumed in Great Britain, were, in the last century, imported from Flanders.
The great improvements in the coarser manufactories of both linen and woollen cloth
furnish the labourers with cheaper and better clothing; and those in the manufactories
of the coarser metals, with cheaper and better instruments of trade, as well as with
many agreeable and convenient pieces of household furniture. Soap, salt, candles,
leather, and fermented liquors, have, indeed, become a good deal dearer, chiefly from
the taxes which have been laid upon them. The quantity of these, however, which the
labouring poor an under any necessity of consuming, is so very small, that the increase
in their price does not compensate the diminution in that of so many other things. The
common complaint, that luxury extends itself even to the lowest ranks of the people,
and that the labouring poor will not now be contented with the same food, clothing,
and lodging, which satisfied them in former times, may convince us that it is not the
money price of labour only, but its real recompence, which has augmented.

Is this improvement in the circumstances of the lower ranks of the people to be
regarded as an advantage, or as an inconveniency, to the society? The answer seems at
first abundantly plain. Servants, labourers, and workmen of different kinds, make up the

ADAM SMITH

far greater part of every great political society. But what improves the circumstances of
the greater part, can never be regarded as any inconveniency to the whole. No society
can sutely be flourishing and happy, of which the far greater part of the members
are poor and miserable. It is but equity, besides, that they who feed, clothe, and lodge
the whole body of the people, should have such a share of the produce of their own
labour as to be themselves tolerably well fed, clothed, and lodged.

Poverty, though it no doubt discourages, does not always prevent, marriage. It
seems even to be favourable to generation. A half-starved Highland woman frequently
bears more than twenty children, while a pampered fine lady is often incapable of
bearing any, and is generally exhausted by two or three. Barrenness, so frequent among
women of fashion, is very rare among those of inferior station. Luxury, in the fair sex,
while it inflames, perhaps, the passion for enjoyment, seems always to weaken, and
frequently to destroy altogether, the powers of generation.

But poverty, though it does not prevent the generation, is extremely unfavourable
to the rearing of children. The tender plant is produced; but in so cold a soil, and so
severe a climate, soon withers and dies. It is not uncommon, I have been frequently
told, in the Highlands of Scotland, for a mother who has born twenty children not
to have two alive. Several officers of great experience have assured me, that, so far
from recruiting their regiment, they have never been able to supply it with drums and
fifes, from all the soldiers’ children that were born in it. A greater number of fine
children, however, is seldom seen anywhere than about a barrack of soldiers. Very
few of them, it seems, arrive at the age of thirteen or fourteen. In some places, one
half the children die before they are four years of age, in many places before they
are seven, and in almost all places before they are nine or ten. This great mortality,
however will everywhere be found chiefly among the children of the common people,
who cannot afford to tend them with the same care as those of better station. Though
their marriages are generally more fruitful than those of people of fashion, a smaller
proportion of their children arrive at maturity. In foundling hospitals, and among the
children brought up by parish charities, the mortality is still greater than among those
of the common people.

Every species of animals naturally multiplies in proportion to the means of their
subsistence, and no species can ever multiply be yond it. But in civilized society, it is
only among the inferior ranks of people that the scantiness of subsistence can set limits
to the further multiplication of the human species; and it can do so in no other way
than by destroying a great part of the children which their fruitful marriages produce.

The liberal reward of labour, by enabling them to provide better for their children,
and consequently to bring up a greater number, naturally tends to widen and extend
those limits. It deserves to be remarked, too, that it necessarily does this as nearly
as possible in the proportion which the demand for labour requires. If this demand
is continually increasing, the reward of labour must necessarily encourage in such a
manner the marriage and multiplication of labourers, as may enable them to supply
that continually increasing demand by a continually increasing population. If the reward

THE WEALTH OF NATIONS | —.'.s...tijt#té##:CO®;w _.

should at any time be less than what was requisite for this purpose, the deficiency
of hands would soon raise it; and if it should at any time be more, their excessive
multiplication would soon lower it to this necessary rate. The market would be so
much understocked with labour in the one case, and so much overstocked in the other,
as would soon force back its price to that proper rate which the circumstances of the
society required. It is in this manner that the demand for men, like that for any other
commodity, necessarily regulates the production of men, quickens it when it goes on
too slowly, and stops it when it advances too fast. It is this demand which regulates and
determines the state of propagation in all the different countries of the world; in North
America, in Europe, and in China; which renders it rapidly progressive in the first, slow
and gradual in the second, and altogether stationary in the last.

The wear and tear of a slave, it has been said, is at the expense of his master; but
that of a free servant is at his own expense. The wear and tear of the latter, however, is,
in reality, as much at the expense of his master as that of the former. The wages paid
to journeymen and servants of every kind must be such as may enable them, one with
another to continue the race of journeymen and servants, according as the increasing,
diminishing, or stationary demand of the society, may happen to require. But though
the wear and tear of a free servant be equally at the expense of his master, it generally
costs him much less than that of a slave. The fund destined for replacing or repairing,
if I may say so, the wear and tear of the slave, is commonly managed by a negligent
master or careless overseer. That destined for performing the same office with regard to
the freeman is managed by the freeman himself. The disorders which generally prevail
in the economy of the rich, naturally introduce themselves into the management of the
former; the strict frugality and parsimonious attention of the poor as naturally establish
themselves in that of the latter. Under such different management, the same purpose
must require very different degrees of expense to execute it. It appears, accordingly,
from the experience of all ages and nations, I believe, that the work done by freemen
comes cheaper in the end than that performed by slaves. It is found to do so even at
Boston, New-York, and Philadelphia, where the wages of common labour are so very
high.

The liberal reward of labour, therefore, as it is the effect of increasing wealth, so it
is the cause of increasing population. To complain of it, is to lament over the necessary
cause and effect of the greatest public prosperity.

It deserves to be remarked, perhaps, that it is in the progressive state, while the
society is advancing to the further acquisition, rather than when it has acquired its full
complement of riches, that the condition of the labouring poor, of the great body
of the people, seems to be the happiest and the most comfortable. It is hard in the
stationary, and miserable in the declining state. The progressive state is, in reality, the
cheerful and the hearty state to all the different orders of the society; the stationary is
dull; the declining melancholy.

The liberal reward of labour, as it encourages the propagation, so it increases
the industry of the common people. The wages of labour are the encouragement

ADAM SMITH

of industry, which, like every other human quality, improves in proportion to the
encouragement it receives. A plentiful subsistence increases the bodily strength of
the labourer, and the comfortable hope of bettering his condition, and of ending his
days, perhaps, in ease and plenty, animates him to exert that strength to the utmost.
Where wages are high, accordingly, we shall always find the workmen more active,
diligent, and expeditious, than where they are low; in England, for example, than in
Scotland; in the neighbourhood of great towns, than in remote country places. Some
workmen, indeed, when they can earn in four days what will maintain them through
the week, will be idle the other three. This, however, is by no means the case with the
greater part. Workmen, on the contrary, when they are liberally paid by the piece, are
very apt to overwork themselves, and to ruin their health and constitution in a few
years. A carpenter in London, and in some other places, is not supposed to last in
his utmost vigour above eight years. Something of the same kind happens in many
other trades, in which the workmen are paid by the piece; as they generally are in
manufactures, and even in country labour, wherever wages are higher than ordinary.
Almost every class of artificers is subject to some peculiar infirmity occasioned by
excessive application to their peculiar species of work. Ramuzzini, an eminent Italian
physician, has written a particular book concerning such diseases. We do not reckon
our soldiers the most industrious set of people among us; yet when soldiers have been
employed in some particular sorts of work, and liberally paid by the piece, their officers
have frequently been obliged to stipulate with the undertaker, that they should not
be allowed to earn above a certain sum every day, according to the rate at which they
were paid. Till this stipulation was made, mutual emulation, and the desire of greater
gain, frequently prompted them to overwork themselves, and to hurt their health by
excessive labour. Excessive application, during four days of the week, is frequently the
real cause of the idleness of the other three, so much and so loudly complained of.
Great labour, either of mind or body, continued for several days together is, in most
men, naturally followed by a great desire of relaxation, which, if not restrained by
force, or by some strong necessity, is almost irresistible. It is the call of nature, which
requires to be relieved by some indulgence, sometimes of ease only, but sometimes
too of dissipation and diversion. If it is not complied with, the consequences are often
dangerous and sometimes fatal, and such as almost always, soonet or later, bring on the
peculiar infirmity of the trade. If masters would always listen to the dictates of reason
and humanity, they have frequently occasion rather to moderate, than to animate the
application of many of their workmen. It will be found, I believe, in every sort of
trade, that the man who works so moderately, as to be able to work constantly, not only
preserves his health the longest, but, in the course of the year, executes the greatest
quantity of work.

In cheap years it is pretended, workmen are generally more idle, and in dear times
more industrious than ordinary. A plentiful subsistence, therefore, it has been concluded,
relaxes, and a scanty one quickens their industry. That a little more plenty than ordinary
may render some workmen idle, cannot be well doubted; but that it should have this

THE WEALTH OF NATIONS @

effect upon the greater part, or that men in general should work better when they are
ill fed, than when they are well fed, when they are disheartened than when they are in
good spirits, when they are frequently sick than when they are generally in good health,
seems not very probable. Years of dearth, it is to be observed, are generally among
the common people years of sickness and mortality, which cannot fail to diminish the
produce of their industry.

In years of plenty, servants frequently leave their masters, and trust their subsistence
to what they can make by their own industry. But the same cheapness of provisions,
by increasing the fund which is destined for the maintenance of servants, encourages
masters, farmers especially, to employ a greater number. Farmers, upon such occasions,
expect more profit from their corn by maintaining a few more labouring servants, than
by selling it at a low price in the market. The demand for servants increases, while the
number of those who offer to supply that demand diminishes. The price of labour,
therefore, frequently rises in cheap years.

In years of scarcity, the difficulty and uncertainty of subsistence make all such
people eager to return to service. But the high price of provisions, by diminishing the
funds destined for the maintenance of servants, disposes masters rather to diminish
than to increase the number of those they have. In dear years, too, poor independent
workmen frequently consume the little stock with which they had used to supply
themselves with the materials of their work, and are obliged to become journeymen for
subsistence. More people want employment than easily get it; many are willing to take
it upon lower terms than ordinary; and the wages of both servants and journeymen
frequently sink in dear years.

Masters of all sorts, therefore, frequently make better bargains with their servants
in dear than in cheap years, and find them more humble and dependent in the former
than in the latter. They naturally, therefore, commend the former as more favourable
to industry. Landlords and farmers, besides, two of the largest classes of masters, have
another reason for being pleased with dear years. The rents of the one, and the profits
of the other, depend very much upon the price of provisions. Nothing can be more
absurd, however, than to imagine that men in general should work less when they work
for themselves, than when they work for other people. A poor independent workman
will generally be more industrious than even a journeyman who works by the piece.
The one enjoys the whole produce of his own industry, the other shares it with his
master. The one, in his separate independent state, is less liable to the temptations of
bad company, which, in large manufactories, so frequently ruin the morals of the other.
The superiority of the independent workman over those servants who are hired by the
month or by the year, and whose wages and maintenance are the same, whether they do
much or do little, is likely to be still greater. Cheap years tend to increase the proportion
of independent workmen to journeymen and servants of all kinds, and dear years to
diminish it.

A French author of great knowledge and ingenuity, Mr Messance, receiver of
the taillies in the election of St Etienne, endeavours to shew that the poor do more

ADAM SMITH

work in cheap than in dear years, by comparing the quantity and value of the goods
made upon those different occasions in three different manufactures; one of coarse
woollens, carried on at Elbeuf; one of linen, and another of silk, both which extend
through the whole generality of Rouen. It appears from his account, which is copied
from the registers of the public offices, that the quantity and value of the goods made
in all those three manufactories has generally been greater in cheap than in dear years,
and that it has always been; greatest in the cheapest, and least in the dearest years. All
the three seem to be stationary manufactures, or which, though their produce may
vaty somewhat from year to year, are, upon the whole, neither going backwards nor
forwards.

The manufacture of linen in Scotland, and that of coarse woollens in the West
Riding of Yorkshire, are growing manufactures, of which the produce is generally,
though with some variations, increasing both in quantity and value. Upon examining,
however, the accounts which have been published of their annual produce, I have
not been able to observe that its variations have had any sensible connection with
the dearness or cheapness of the seasons. In 1740, a year of great scarcity, both
manufactures, indeed, appear to have declined very considerably. But in 1756, another
year or great scarcity, the Scotch manufactures made more than ordinary advances.
The Yorkshire manufacture, indeed, declined, and its produce did not rise to what it
had been in 1755, till 1766, after the repeal of the American stamp act. In that and the
following year, it greatly exceeded what it had ever been before, and it has continued
to advance ever since.

The produce of all great manufactures for distant sale must necessarily depend, not
so much upon the dearness or cheapness of the seasons in the countries where they are
carried on, as upon the circumstances which affect the demand in the countries where
they are consumed; upon peace or war, upon the prosperity or declension of other
rival manufactures and upon the good or bad humour of their principal customers.
A great part of the extraordinary work, besides, which is probably done in cheap
years, never enters the public registers of manufactures. The men-servants, who leave
their masters, become independent labourers. The women return to their parents,
and commonly spin, in order to make clothes for themselves and their families. Even
the independent workmen do not always, work for public sale, but are employed by
some of their neighbours in manufactures for family use. The produce of their labour,
therefore, frequently makes no figure in those public registers, of which the records
are sometimes published with so much parade, and from which our merchants and
manufacturers would often vainly pretend to announce the prosperity or declension of
the greatest empires.

Through the variations in the price of labour not only do not always correspond
with those in the price of provisions, but are frequently quite Opposite, we must not,
upon this account, imagine that the price of provisions has no influence upon that of
labour. The money price of labour is necessarily regulated by two circumstances; the
demand for labour, and the price of the necessaries and conveniencies o1ites Lhe

THE WEALTH OF NATIONS —

demand for labour, according as it happens to be increasing, stationary, or declining, or
to require an increasing, stationary, or declining population, determines the quantities
of the necessaries and conveniencies of life which must be given to the labourer;
and the money price of labour is determined by what is requisite for purchasing this
quantity. Though the money price of labour, therefore, is sometimes high where the
price of provisions is low, it would be still higher, the demand continuing the same, if
the price of provisions was high.

It is because the demand for labour increases in years of sudden and extraordinary
plenty, and diminishes in those of sudden and extraordinary scarcity, that the money
ptice of labour sometimes rises in the one, and sinks in the other.

In a year of sudden and extraordinary plenty, there are funds in the hands of many
of the employers of industry, sufficient to maintain and employ a greater number of
industrious people than had been employed the year before; and this extraordinary
number cannot always be had. Those masters, therefore, who want more workmen, bid
against one another, in order to get them, which sometimes raises both the real and the
money price of their labour.

The contrary of this happens in a year of sudden and extraordinary scarcity. The
funds destined for employing industry are less than they had been the year before. A
considerable number of people are thrown out of employment, who bid one against
another, in order to get it, which sometimes lowers both the real and the money price of
labour. In 1740, a year of extraordinary scarcity, many people were willing to work for
bare subsistence. In the succeeding years of plenty, it was more difficult to get labourers
and servants. The scarcity of a dear year, by diminishing the demand for labour, tends
to lower its price, as the high price of provisions tends to raise it. The plenty of a cheap
year, on the contrary, by increasing the demand, tends to raise the price of labour, as
the cheapness of provisions tends to lower it. In the ordinary variations of the prices
of provisions, those two opposite causes seem to counterbalance one another, which
is probably, in part, the reason why the wages of labour are everywhere so much more
steady and permanent than the price of provisions.

The increase in the wages of labour necessarily increases the price of many
commodities, by increasing that part of it which resolves itself into wages, and so
far tends to diminish their consumption, both at home and abroad. The same cause,
however, which raises the wages of labour, the increase of stock, tends to increase
its productive powers, and to make a smaller quantity of labour produce a greater
quantity of work. The owner of the stock which employs a great number of labourers
necessarily endeavours, for his own advantage, to make such a proper division and
distribution of employment, that they may be enabled to produce the greatest quantity
of work possible. For the same reason, he endeavours to supply them with the best
machinery which either he or they can think of. What takes place among the labourers in
a particular workhouse, takes place, for the same reason, among those of a great society.
The greater their number, the more they naturally divide themselves into different
classes and subdivisions of employments. More heads are occupied in inventing the

ADAM SMITH

most proper machinery for executing the work of each, and it is, therefore, more likely
to be invented. There me many commodities, therefore, which, in consequence of
these improvements, come to be produced by so much less labour than before, that the
increase of its price is more than compensated by the diminution of its quantity.

cal

THE WEALTH OF NATIONS

CHAPTER IX.
OF THE PROFITS OF STOCK.

he rise and fall in the profits of stock depend upon the same causes with the rise
and fall in the wages of labour, the increasing or declining state of the wealth of
the society; but those causes affect the one and the other very differently.

The increase of stock, which raises wages, tends to lower profit. When the stocks
of many rich merchants are turned into the same trade, their mutual competition
naturally tends to lower its profit; and when there is a like increase of stock in all the
different trades carried on in the same society, the same competition must produce the
same effect in them all.

It is not easy, it has already been observed, to ascertain what are the average wages
of labour, even in a particular place, and at a particular time. We can, even in this
case, seldom determine more than what are the most usual wages. But even this can
seldom be done with regard to the profits of stock. Profit is so very fluctuating, that
the person who carties on a particular trade, cannot always tell you himself what is the
average of his annual profit. It is affected, not only by every variation of price in the
commodities which he deals in, but by the good or bad fortune both of his rivals and of
his customers, and by a thousand other accidents, to which goods, when carried either
by sea or by land, or even when stored in a warehouse, are liable. It varies, therefore, not
only from year to year, but from day to day, and almost from hour to hour. To ascertain
what is the average profit of all the different trades carried on in a great kingdom, must
be much more difficult; and to judge of what it may have been formerly, or in remote
periods of time, with any degree of precision, must be altogether impossible.

But though it may be impossible to determine, with any degree of precision, what
are or were the average profits of stock, either in the present or in ancient times, some
notion may be formed of them from the interest of money. It may be laid down as a
maxim, that wherever a great deal can be made by the use of money, a great deal will
commonly be given for the use of it; and that, wherever little can be made by it, less will
commonly he given for it. Accordingly, therefore, as the usual market rate of interest
varies in any country, we may be assured that the ordinary profits of stock must vary
with it, must sink as it sinks, and rise as it rises. The progress of interest, therefore, may
lead us to form some notion of the progress of profit.

By the 37th of Henry VIII. all interest above ten per cent. was declared unlawful.
Mote, it seems, had sometimes been taken before that. In the reien of Edward VI.
religious zeal prohibited all interest. This prohibition, however, like all others of the
same kind, is said to have produced no effect, and probably rather increased than

ADAM SMITH

diminished the evil of usury. The statute of Henry VIII. was revived by the 13th of
Elizabeth, cap. 8. and ten per cent. continued to be the legal rate of interest till the
21st of James I. when it was restricted to eight per cent. It was reduced to six per cent.
soon after the Restoration, and by the 12th of Queen Anne, to five per cent. All these
different statutory regulations seem to have been made with great propriety. They seem
to have followed, and not to have gone before, the market rate of interest, or the rate at
which people of good credit usually borrowed. Since the time of Queen Anne, five per
cent. seems to have been rather above than below the market rate. Before the late war,
the government borrowed at three per cent.; and people of good credit in the capital,
and in many other parts of the kingdom, at three and a-half, four, and four and a-half
per cent.

Since the time of Henry VIII. the wealth and revenue of the country have been
continually advancing, and in the course of their progress, their pace seems rather
to have been gradually accelerated than retarded. They seem not only to have been
going on, but to have been going on faster and faster. The wages of labour have been
continually increasing during the same period, and, in the greater part of the different
branches of trade and manufactures, the profits of stock have been diminishing,

It generally requires a greater stock to carry on any sort of trade in a great town
than in a country village. The great stocks employed in every branch of trade, and the
number of rich competitors, generally reduce the rate of profit in the former below
what it is in the latter. But the wages of labour are generally higher in a great town than
in a country village. In a thriving town, the people who have great stocks to employ,
frequently cannot get the number of workmen they want, and therefore bid against
one another, in order to get as many as they can, which raises the wages of labour,
and lowers the profits of stock. In the remote parts of the country, there is frequently
not stock sufficient to employ all the people, who therefore bid against one another, in
order to get employment, which lowers the wages of labour, and raises the profits of
stock.

In Scotland, though the legal rate of interest is the same as in England, the market
rate is rather higher. People of the best credit there seldom borrow under five per cent.
Even private bankers in Edinburgh give four per cent. upon their promissory-notes,
of which payment, either in whole or in part may be demanded at pleasure. Private
bankers in London give no interest for the money which is deposited with them. There
are few trades which cannot be carried on with a smaller stock in Scotland than in
England. The common rate of profit, therefore, must be somewhat greater. The wages
of labour, it has already been observed, are lower in Scotland than in England. The
country, too, is not only much poorer, but the steps by which it advances to a better
condition, for it is evidently advancing, seem to be much slower and more tardy. The
legal rate of interest in France has not during the course of the present century, been
always regulated by the market rate {See Denisart, Article Taux des Interests, tom. iti,
p.13}. In 1720, interest was reduced from the twentieth to the fiftieth penny, or from
five to two per cent. In 1724, it was raised to the thirtieth penny, or to three and a third

THE WEALTH OF NATIONS CO

per cent. In 1725, it was again raised to the twentieth penny, or to five per cent. In 1766,
during the administration of Mr Laverdy, it was reduced to the twenty-fifth penny, or
to four per cent. The Abbé Terray raised it afterwards to the old rate of five per cent.
The supposed purpose of many of those violent reductions of interest was to prepare
the way for reducing that of the public debts; a purpose which has sometimes been
executed. France is, perhaps, in the present times, not so rich a country as England; and
though the legal rate of interest has in France frequently been lower than in England,
the market rate has generally been higher; for there, as in other countries, they have
several very safe and easy methods of evading the law. The profits of trade, I have been
assured by British merchants who had traded in both countries, are higher in France
than in England; and it is no doubt upon this account, that many British subjects chuse
rather to employ their capitals in a country where trade is in disgrace, than in one where
it is highly respected. The wages of labour are lower in France than in England. When
you go from Scotland to England, the difference which you may remark between the
dress and countenance of the common people in the one country and in the other,
sufficiently indicates the difference in their condition. The contrast is still greater when
you return from France. France, though no doubt a richer country than Scotland,
seems not to be going forward so fast. It is a common and even a popular opinion in
the country, that it is going backwards; an opinion which I apprehend, is ill-founded,
even with regard to France, but which nobody can possibly entertain with regard to
Scotland, who sees the country now, and who saw it twenty or thirty years ago.

The province of Holland, on the other hand, in proportion to the extent of its
territory and the number of its people, 1s a richer country than England. The government
there borrow at two per cent. and private people of good credit at three. The wages
of labour are said to be higher in Holland than in England, and the Dutch, it is well
known, trade upon lower profits than any people in Europe. The trade of Holland, it
has been pretended by some people, is decaying, and it may perhaps be true that some
particular branches of it are so; but these symptoms seem to indicate sufficiently that
there is no general decay. When profit diminishes, merchants are very apt to complain
that trade decays, though the diminution of profit is the natural effect of its prosperity,
or of a greater stock being employed in it than before. During the late war, the Dutch
gained the whole carrying trade of France, of which they still retain a very large share.
The great property which they possess both in French and English funds, about forty
millions, it is said in the latter (in which, I suspect, however, there is a considerable
exaggeration ), the great sums which they lend to private people, in countries where
the rate of interest is higher than in their own, ate circumstances which no doubt
demonstrate the redundancy of their stock, or that it has increased beyond what they
can employ with tolerable profit in the proper business of their own country; but they
do not demonstrate that that business has decreased. As the capital of a private man,
though acquired by a particular trade, may increase beyond what he can employ in it,
and yet that trade continue to increase too, so may likewise the capital of a great nation.

In our North American and West Indian colonies, not only the wages of labour,

ADAM SMITH

but the interest of money, and consequently the profits of stock, are higher than in
England. In the different colonies, both the legal and the market rate of interest run
from six to eight percent. High wages of labour and high profits of stock, however,
are things, perhaps, which scarce ever go together, except in the peculiar circumstances
of new colonies. A new colony must always, for some time, be more understocked in
proportion to the extent of its territory, and more underpeopled in proportion to the
extent of its stock, than the greater part of other countries. They have more land than
they have stock to cultivate. What they have, therefore, is applied to the cultivation
only of what is most fertile and most favourably situated, the land near the sea-shore,
and along the banks of navigable rivers. Such land, too, is frequently purchased at a
price below the value even of its natural produce. Stock employed in the purchase and
improvement of such lands, must yield a very large profit, and, consequently, afford to
pay a very large interest. Its rapid accumulation in so profitable an employment enables
the planter to increase the number of his hands faster than he can find them in a new
settlement. Those whom he can find, therefore, are very liberally rewarded. As the
colony increases, the profits of stock gradually diminish. When the most fertile and
best situated lands have been all occupied, less profit can be made by the cultivation of
what is inferior both in soil and situation, and less interest can be afforded for the stock
which is so employed. In the greater part of our colonies, accordingly, both the legal
and the market rate of interest have been considerably reduced during the course of
the present century. As riches, improvement, and population, have increased, interest
has declined. The wages of labour do not sink with the profits of stock. The demand
for labour increases with the increase of stock, whatever be its profits; and after these
are diminished, stock may not only continue to increase, but to increase much faster
than before. It is with industrious nations, who are advancing in the acquisition of
riches, as with industrious individuals. A great stock, though with small profits, generally
increases faster than a small stock with great profits. Money, says the proverb, makes
money. When you have got a little, it is often easy to get more. The great difficulty is to
get that little. The connection between the increase of stock and that of industry, or of
the demand for useful labour, has partly been explained already, but will be explained
more fully hereafter, in treating of the accumulation of stock.

The acquisition of new territory, or of new branches of trade, may sometimes
raise the profits of stock, and with them the interest of money, even in a country
which is fast advancing in the acquisition of riches. The stock of the country, not
being sufficient for the whole accession of business which such acquisitions present to
the different people among whom it is divided, is applied to those particular branches
only which afford the greatest profit. Part of what had before been employed in other
trades, is necessarily withdrawn from them, and turned into some of the new and more
profitable ones. In all those old trades, therefore, the competition comes to be Jess than
before. The market comes to be less fully supplied with many different sorts of goods.
Their price necessarily rises more or less, and yields a greater profit to those who deal
in them, who can, therefore, afford to borrow at a higher interest. For some time after

‘a

THE WEALTH OF NATIONS

the conclusion of the late war, not only private people of the best credit, but some of
the greatest companies in London, commonly borrowed at five per cent. who, before
that, had not been used to pay more than four, and four and a half per cent. The great
accession both of territory and trade by our acquisitions in North America and the
West Indies, will sufficiently account for this, without supposing any diminution in the
capital stock of the society. So great an accession of new business to be carried on
by the old stock, must necessarily have diminished the quantity employed in a great
number of particular branches, in which the competition being less, the profits must
have been greater. I shall hereafter have occasion to mention the reasons which dispose
me to believe that the capital stock of Great Britain was not diminished, even by the
enormous expense of the late war.

The diminution of the capital stock of the society, or of the funds destined for
the maintenance of industry, however, as it lowers the wages of labour, so it raises the
profits of stock, and consequently the interest of money. By the wages of labour being
lowered, the owners of what stock remains in the society can bring their goods at less
expense to market than before; and less stock being employed in supplying the market
than before, they can sell them dearer. Their goods cost them less, and they get more
for them. Their profits, therefore, being augmented at both ends, can well afford a large
interest. The great fortunes so suddenly and so easily acquired in Bengal and the other
British settlements in the East Indies, may satisfy us, that as the wages of labour are
very low, so the profits of stock are very high in those ruined countries. The interest
of money is proportionably so. In Bengal, money is frequently lent to the farmers at
forty, fifty, and sixty per cent. and the succeeding crop is mortgaged for the payment.
As the profits which can afford such an interest must eat up almost the whole rent of
the landlord, so such enormous usury must in its turn eat up the greater part of those
profits. Before the fall of the Roman republic, a usury of the same kind seems to have
been common in the provinces, under the ruinous administration of their proconsuls.
The virtuous Brutus lent money in Cyprus at eight-and-forty per cent. as we learn from
the letters of Cicero.

In a country which had acquired that full complement of riches which the nature of
its soil and climate, and its situation with respect to other countries, allowed it to acquire,
which could, therefore, advance no further, and which was not going backwards, both
the wages of labour and the profits of stock would probably be very low. In a country
fully peopled in proportion to what either its territory could maintain, or its stock
employ, the competition for employment would necessarily be so great as to reduce
the wages of labour to what was barely sufficient to keep up the number of labourers,
and the country being already fully peopled, that number could never be augmented.
In a country fully stocked in proportion to all the business it had to transact, as great
a quantity of stock would be employed in every particular branch as the nature and
extent of the trade would admit. The competition, therefore, would everywhere be as
great, and, consequently, the ordinary profit as low as possible.

But, perhaps, no country has ever yet arrived at this degree of opulence. China

ADAM SMITH

seems to have been long stationary, and had, probably, long ago acquired that full
complement of riches which is consistent with the nature of its laws and institutions.
But this complement may be much inferior to what, with other laws and institutions,
the nature of its soil, climate, and situation, might admit of. A country which neglects
ot despises foreign commerce, and which admits the vessel of foreign nations into one
or two of its ports only, cannot transact the same quantity of business which it might
do with different laws and institutions. In a country, too, where, though the rich, or the
ownets of large capitals, enjoy a good deal of security, the poor, or the owners of small
capitals, enjoy scarce any, but are liable, under the pretence of justice, to be pillaged
and plundered at any time by the inferior mandarins, the quantity of stock employed
in all the different branches of business transacted within it, can never be equal to
what the nature and extent of that business might admit. In every different branch, the
oppression of the poor must establish the monopoly of the rich, who, by engrossing
the whole trade to themselves, will be able to make very large profits. Twelve per cent.
accordingly, is said to be the common interest of money in China, and the ordinary
profits of stock must be sufficient to afford this large interest.

A defect in the law may sometimes raise the rate of interest considerably above what
the condition of the country, as to wealth or poverty, would require. When the law does
not enforce the performance of contracts, it puts all borrowers nearly upon the same
footing with bankrupts, or people of doubtful credit, in better regulated countries. The
uncertainty of recovering his money makes the lender exact the same usurious interest
which is usually required from bankrupts. Among the barbarous nations who overran
the western provinces of the Roman empire, the performance of contracts was left for
many ages to the faith of the contracting parties. The courts of justice of their kings
seldom intermeddled in it. The high rate of interest which took place in those ancient
times, may, perhaps, be partly accounted for from this cause.

When the law prohibits interest altogether, it does not prevent it. Many people
must borrow, and nobody will lend without such a consideration for the use of their
money as is suitable, not only to what can be made by the use of it, but to the difficulty
and danger of evading the law. The high rate of interest among all Mahometan nations
is accounted for by M. Montesquieu, not from their poverty, but partly from this, and
partly from the difficulty of recovering the money.

The lowest ordinary rate of profit must always be something more than what is
sufficient to compensate the occasional losses to which every employment of stock is
exposed. It is this surplus only which is neat or clear profit. What is called gross profit,
comprehends frequently not only this surplus, but what is retained for compensating
such extraordinary losses. The interest which the borrower can afford to pay is in
proportion to the clear profit only. The lowest ordinary rate of interest must, in the
same manner, be something more than sufficient to compensate the occasional losses
to which lending, even with tolerable prudence, is exposed. Were it not, mere charity or
friendship could be the only motives for lending.

In a country which had acquired its full complement of riches, where, in every

THE WEALTH OF NATIONS”

particular branch of business, there was the greatest quantity of stock that could be
employed in it, as the ordinary rate of clear profit would be very small, so the usual
market rate of interest which could be afforded out of it would be so low as to render
it impossible for any but the very wealthiest people to live upon the interest of their
money. All people of small or middling fortunes would be obliged to superintend
themselves the employment of their own stocks. It would be necessary that almost
every man should be a man of business, or engage in some sort of trade. The province
of Holland seems to be approaching near to this state. It is there unfashionable not
to be a man of business. Necessity makes it usual for almost every man to be so, and
custom everywhere regulates fashion. As it is ridiculous not to dress, so is it, in some
measure, not to be employed like other people. As a man of a civil profession seems
awkward in a camp or a garrison, and is even in some danger of being despised there,
so does an idle man among men of business.

The highest ordinary rate of profit may be such as, in the price of the greater
part of commodities, eats up the whole of what should go to the rent of the land,
and leaves only what is sufficient to pay the labour of preparing and bringing them to
market, according to the lowest rate at which labour can anywhere be paid, the bare
subsistence of the labourer. The workman must always have been fed in some way or
other while he was about the work, but the landlord may not always have been paid.
The profits of the trade which the servants of the East India Company carry on in
Bengal may not, perhaps, be very far from this rate.

The proportion which the usual market rate of interest ought to bear to the ordinary
rate of clear profit, necessarily varies as profit rises or falls. Double interest is in Great
Britain reckoned what the merchants call a good, moderate, reasonable profit; terms
which, I apprehend, mean no more than a common and usual profit. In a country where
the ordinary rate of clear profit is eight or ten per cent. it may be reasonable that one
half of it should go to interest, wherever business is carried on with borrowed money.
The stock is at the risk of the borrower, who, as it were, insures it to the lender; and
four or five per cent. may, in the greater part of trades, be both a sufficient profit upon
the risk of this insurance, and a sufficient recompence for the trouble of employing
the stock. But the proportion between interest and clear profit might not be the same
in countries where the ordinary rate of profit was either a good deal lower, or a good
deal higher. If it were a good deal lower, one half of it, perhaps, could not be afforded
for interest; and more might be afforded if it were a good deal higher.

In countries which are fast advancing to riches, the low rate of profit may, in the
price of many commodities, compensate the high wages of labour, and enable those
countries to sell as cheap as their less thriving neighbours, among whom the wages of
labour may be lower.

In reality, high profits tend much mote to raise the price of work than high wages.
If, in the linen manufacture, for example, the wages of the different working people,
the flax-dressers, the spinners, the weavers, etc. should all of them be advanced
twopence a-day, it would be necessary to heighten the price of a piece of linen only by a

ADAM SMITH

number of twopences equal to the number of people that had been employed about it,
multiplied by the number of days during which they had been so employed. That part
of the price of the commodity which resolved itself into the wages, would, through
all the different stages of the manufacture, tise only in arithmetical proportion to this
tise of wages. But if the profits of all the different employers of those working people
should be raised five per cent. that part of the price of the commodity which resolved
itself into profit would, through all the different stages of the manufacture, rise in
geometrical proportion to this rise of profit. The employer of the flax dressers would,
in selling his flax, require an additional five per cent. upon the whole value of the
materials and wages which he advanced to his workmen. The employer of the spinners
would require an additional five per cent. both upon the advanced price of the flax, and
upon the wages of the spinners. And the employer of the weavers would require alike
five per cent. both upon the advanced price of the linen-yarn, and upon the wages of
the weavers. In raising the price of commodities, the rise of wages operates in the same
mannet as simple interest does in the accumulation of debt. The rise of profit operates
like compound interest. Our merchants and master manufacturers complain much of
the bad effects of high wages in raising the price, and thereby lessening the sale of their
goods, both at home and abroad. They say nothing concerning the bad effects of high
profits; they are silent with regard to the pernicious effects of their own gains; they
complain only of those of other people.

THE WEALTH OF NATIONS

CHAPTER X.

OF WAGES AND PROFIT IN THE
DIFFERENT EMPLOYMENTS OF
LABOUR AND STOCK.

he whole of the advantages and disadvantages of the different employments of

labour and stock, must, in the same neighbourhood, be either perfectly equal,
orf continually tending to equality. If, in the same neighbourhood, there was any
employment evidently either more or less advantageous than the rest, so many people
would crowd into it in the one case, and so many would desert it in the other, that
its advantages would soon return to the level of other employments. This, at least,
would be the case in a society where things were left to follow their natural course,
where there was perfect liberty, and where every man was perfectly free both to choose
what occupation he thought proper, and to change it as often as he thought proper.
Every man’s interest would prompt him to seek the advantageous, and to shun the
disadvantageous employment.

Pecuniary wages and profit, indeed, are everywhere in Europe extremely different,
according to the different employments of labour and stock. But this difference arises,
partly from certain circumstances in the employments themselves, which, either really,
or at least in the imagination of men, make up for a small pecuniary gain in some, and
counterbalance a great one in others, and partly from the policy of Europe, which
nowhere leaves things at perfect liberty.

The particular consideration of those circumstances, and of that policy, will divide
this Chapter into two parts.

ADAM SMITH

PART I.

Inequalities arising from the nature of the employments themselves.

The five following are the principal circumstances which, so far as I have been
able to observe, make up for a small pecuniary gain in some employments, and
counterbalance a great one in others. First, the agreeableness or disagreeableness of
the employments themselves; secondly, the easiness and cheapness, or the difficulty
and expense of learning them; thirdly, the constancy or inconstancy of employment in
them; fourthly, the small or great trust which must be reposed in those who exercise
them; and, fifthly, the probability or improbability of success in them.

First, the wages of labour vary with the ease or hardship, the cleanliness or dirtiness,
the honourableness or dishonourableness, of the employment. Thus in most places,
take the year round, a journeyman tailor earns less than a journeyman weaver. His work
is much easier. A journeyman weaver earns less than a journeyman smith. His work is
not always easier, but it is much cleanlier. A journeyman blacksmith, though an artificer,
seldom earns so much in twelve hours, as a collier, who is only a labourer, does in eight.
His work is not quite so dirty, is less dangerous, and is carried on in day-light, and above
ground. Honour makes a great part of the reward of all honourable professions. In
point of pecuniary gain, all things considered, they are generally under-recompensed,
as I shall endeavour to shew by and by. Disgrace has the contrary effect. The trade of a
butcher is a brutal and an odious business; but it is in most places more profitable than
the greater part of common trades. The most detestable of all employments, that of
public executioner, is, in proportion to the quantity of work done, better paid than any
_ common trade whatever.

Hunting and fishing, the most important employments of mankind in the rude
state of society, become, in its advanced state, their most agreeable amusements, and
they pursue for pleasure what they once followed from necessity. In the advanced state
of society, therefore, they are all very poor people who follow as a trade, what other
people pursue as a pastime. Fishermen have been so since the time of Theocritus.
{See Idyllium xxi.}. A poacher is everywhere a very poor man in Great Britain. In
countries where the rigour of the law suffers no poachers, the licensed hunter is not in
a much better condition. The natural taste for those employments makes more people
follow them, than can live comfortably by them; and the produce of their labour, in
proportion to its quantity, comes always too cheap to market, to afford any thing but
the most scanty subsistence to the labourers.

Disagreeableness and disgrace affect the profits of stock in the same manner as
the wages of labour. The keeper of an inn or tavern, who is never master of his own
house, and who is exposed to the brutality of every drunkard, exercises neither a very
agreeable nor a very creditable business. But there is scarce any common trade in which

THE WEALTH OF NATIONS

a small stock yields so great a profit.

Secondly, the wages of labour vary with the easiness and cheapness, or the difficulty
and expense, of learning the business.

When any expensive machine is erected, the extraordinary work to be performed
by it before it is worn out, it must be expected, will replace the capital laid out upon
it, with at least the ordinary profits. A man educated at the expense of much labour
and time to any of those employments which require extraordinary dexterity and skill,
may be compared to one of those expensive machines. The work which he learns to
perform, it must be expected, over and above the usual wages of common labour, will
replace to him the whole expense of his education, with at least the ordinary profits of
an equally valuable capital. It must do this too in a reasonable time, regard being had to
the very uncertain duration of human life, in the same manner as to the more certain
duration of the machine.

The difference between the wages of skilled labour and those of common labour,
is founded upon this principle.

The policy of Europe considers the labour of all mechanics, artificers, and
manufacturers, as skilled labour; and that of all country labourers us common labour. It
seems to suppose that of the former to be of a more nice and delicate nature than that
of the latter. It is so perhaps in some cases; but in the greater part it is quite otherwise,
as I shall endeavour to shew by and by. The laws and customs of Europe, therefore,
in order to qualify any person for exercising the one species of labour, impose the
necessity of an apprenticeship, though with different degrees of rigour in different
places. They leave the other free and open to every body. During the continuance
of the apprenticeship, the whole labour of the apprentice belongs to his master. In
the meantime he must, in many cases, be maintained by his parents or relations, and,
in almost all cases, must be clothed by them. Some money, too, is commonly given
to the master for teaching him his trade. They who cannot give money, give time,
or become bound for more than the usual number of years; a consideration which,
though it is not always advantageous to the master, on account of the usual idleness
of apprentices, is always disadvantageous to the apprentice. In country labour, on the
contrary, the labourer, while he is employed about the easier, learns the more difficult
parts of his business, and his own labour maintains him through all the different
stages of his employment. It is reasonable, therefore, that in Europe the wages of
mechanics, artificers, and manufacturers, should be somewhat higher than those of
common labourers. They are so accordingly, and their superior gains make them, in
most places, be considered as a superior rank of people. This superiority, however, is
generally very small: the daily or weekly earnings of journeymen in the more common
sorts of manufactures, such as those of plain linen and woollen cloth, computed at an
average, are, in most places, very little more than the day-wages of common labourers.
Their employment, indeed, is more steady and uniform, and the superiority of their
earnings, taking the whole year together, may be somewhat greater. It seems evidently,
however, to be no greater than what is sufficient to compensate the superior expense

ADAM SMITH

of their education. Education in the ingenious arts, and in the liberal professions, is
still more tedious and expensive. The pecuniary recompence, therefore, of painters
and sculptors, of lawyers and physicians, ought to be much mote liberal; and it is so
accordingly.

The profits of stock seem to be very little affected by the easiness or difficulty
of learning the trade in which it is employed. All the different ways in which stock
is commonly employed in great towns seem, in reality, to be almost equally easy and
equally difficult to learn. One branch, either of foreign or domestic trade, cannot well
be a much mote intricate business than another.

Thirdly, the wages of labour in different occupations vary with the constancy or
inconstancy of employment.

Employment is much more constant in some trades than in others. In the greater
part of manufactures, a journeyman maybe pretty sure of employment almost every
day in the year that he is able to work. A mason or bricklayer, on the contrary, can work
neither in hard frost nor in foul weather, and his employment at all other times depends
upon the occasional calls of his customers. He is liable, in consequence, to be frequently
without any. What he earns, therefore, while he is employed, must not only maintain him
while he is idle, but make him some compensation for those anxious and desponding
moments which the thought of so precarious a situation must sometimes occasion.
Where the computed earnings of the greater part of manufacturers, accordingly, are
neatly upon a level with the day-wages of common labourers, those of masons and
bricklayers are generally from one-half more to double those wages. Where common
labourers earn four or five shillings a-week, masons and bricklayers frequently earn
seven and eight; where the former earn six, the latter often earn nine and ten; and
where the former earn nine and ten, as in London, the latter commonly earn fifteen
and eighteen. No species of skilled labour, however, seems more easy to learn than
_ that of masons and bricklayers. Chairmen in London, during the summer season, are
said sometimes to be employed as bricklayers. The high wages of those workmen,
therefore, are not so much the recompence of their skill, as the compensation for the
inconstancy of their employment.

A house-carpenter seems to exercise rather a nicer and a more ingenious trade than a
mason. In most places, however, for it is not universally so, his day-wages are somewhat
lower. His employment, though it depends much, does not depend so entirely upon the
occasional calls of his customers; and it is not liable to be interrupted by the weather.

When the trades which generally afford constant employment, happen in
a particular place not to do so, the wages of the workmen always rise a good deal
above their ordinary proportion to those of common labour. In London, almost all
journeymen artificers are liable to be called upon and dismissed by their masters from
day to day, and from week to week, in the same manner as day-labourers in other
places. The lowest order of artificers, journeymen tailors, accordingly, earn their half-
a-crown a-day, though eighteen pence may be reckoned the wages of common labour.
In small towns and country villages, the wages of journeymen tailors frequently scarce

THE WEALTH OF NATIONS

equal those of common labour; but in London they are often many weeks without
employment, particularly during the summer.

When the inconstancy of employment is combined with the hardship,
disagreeableness, and dirtiness of the work, it sometimes raises the wages of the
most common labour above those of the most skilful artificers. A collier working by
the piece is supposed, at Newcastle, to earn commonly about double, and, in many
parts of Scotland, about three times, the wages of common labour. His high wages
atise altogether from the hardship, disagreeableness, and dirtiness of his work. His
employment may, upon most occasions, be as constant as he pleases. The coal-heavers
in London exercise a trade which, in hardship, dirtiness, and disagreeableness, almost
equals that of colliers; and, from the unavoidable irregularity in the arrivals of coal-
ships, the employment of the greater part of them is necessarily very inconstant. If
colliers, therefore, commonly earn double and triple the wages of common labour, it
ought not to seem unreasonable that coal-heavers should sometimes earn four and five
times those wages. In the inquiry made into their condition a few years ago, it was found
that, at the rate at which they were then paid, they could earn from six to ten shillings
a-day. Six shillings are about four times the wages of common labour in London; and,
in every particular trade, the lowest common earnings may always be considered as
those of the far greater number. How extravagant soever those earnings may appear, if
they were more than sufficient to compensate all the disagreeable circumstances of the
business, there would soon be so great a number of competitors, as, in a trade which
has no exclusive privilege, would quickly reduce them to a lower rate.

The constancy or inconstancy of employment cannot affect the ordinary profits
of stock in any particular trade. Whether the stock is or is not constantly employed,
depends, not upon the trade, but the trader.

Fourthly, the wages of labour vary according to the small or great trust which must
be reposed in the workmen.

The wages of goldsmiths and jewellers are everywhere superior to those of many
other workmen, not only of equal, but of much superior ingenuity, on account of the
precious materials with which they are entrusted. We trust our health to the physician,
out fortune, and sometimes our life and reputation, to the lawyer and attorney. Such
confidence could not safely be reposed in people of a very mean or low condition.
Their reward must be such, therefore, as may give them that rank in the society which
so important a trust requires. The long time and the great expense which must be laid
out in their education, when combined with this circumstance, necessarily enhance still
further the price of their labour.

When a person employs only his own stock in trade, there is no trust; and the credit
which he may get from other people, depends, not upon the nature of the trade, but
upon their opinion of his fortune, probity and prudence. The different rates of profit,
therefore, in the different branches of trade, cannot arise from the different degrees of
trust reposed in the traders.

Fifthly, the wages of labour in different employments vary according to the

ADAM SMITH

probability or improbability of success in them.

The probability that any particular person shall ever be qualified for the employments
to which he is educated, is very different in different occupations. In the greatest part of
mechanic trades success is almost certain; but very uncertain in the liberal professions.
Put your son apprentice to a shoemaker, there is little doubt of his learning to make
a pair of shoes; but send him to study the law, it as at least twenty to one if he ever
makes such proficiency as will enable him to live by the business. In a perfectly fair
lottery, those who draw the prizes ought to gain all that is lost by those who draw the
blanks. In a profession, where twenty fail for one that succeeds, that one ought to gain
all that should have been gained by the unsuccessful twenty. The counsellor at law, who,
perhaps, at near forty years of age, begins to make something by his profession, ought
to receive the retribution, not only of his own so tedious and expensive education, but
of that of more than twenty others, who are never likely to make any thing by it. How
extravagant soever the fees of counsellors at law may sometimes appear, their real
retribution is never equal to this. Compute, in any particular place, what is likely to be
annually gained, and what is likely to be annually spent, by all the different workmen
in any common trade, such as that of shoemakers or weavers, and you will find that
the former sum will generally exceed the latter. But make the same computation with
regard to all the counsellors and students of law, in all the different Inns of Court,
and you will find that their annual gains bear but a very small proportion to their
annual expense, even though you rate the former as high, and the latter as low, as can
well be done. The lottery of the law, therefore, is very far from being a perfectly fair
lottery; and that as well as many other liberal and honourable professions, 1s, in point
of pecuniary gain, evidently under-recompensed.

Those professions keep their level, however, with other occupations; and,
notwithstanding these discouragements, all the most generous and liberal spirits are

eager to crowd into them. Two different causes contribute to recommend them. First,
the desire of the reputation which attends upon superior excellence in any of them;
and, secondly, the natural confidence which every man has, more or less, not only in his
own abilities, but in his own good fortune.

To excel in any profession, in which but few arrive at mediocrity, it is the most
decisive mark of what is called genius, or superior talents. The public admiration which
attends upon such distinguished abilities makes always a part of their reward; a greater
or smaller, in proportion as it is higher or lower in degree. It makes a considerable part
of that reward in the profession of physic; a still greater, perhaps, in that of law; in
poetry and philosophy it makes almost the whole.

There are some very agreeable and beautiful talents, of which the possession
commands a certain sort of admiration, but of which the exercise, for the sake of gain,
is considered, whether from reason or prejudice, as a sort of public prostitution. The
pecuniary recompence, therefore, of those who exercise them in this manner, must be
sufficient, not only to pay for the time, labour, and expense of acquiring the talents, but
for the discredit which attends the employment of them as the means of subsistence.

THE WEALTH OF NATIONS

The exorbitant rewards of players, opera-singets, opera-dancers, etc. are founded upon
those two principles; the rarity and beauty of the talents, and the discredit of employing
them in this manner. It seems absurd at first sight, that we should despise their persons,
and yet reward their talents with the most profuse liberality. While we do the one,
however, we must of necessity do the other, Should the public opinion or prejudice
ever alter with regard to such occupations, their pecuniary recompence would quickly
diminish. More people would apply to them, and the competition would quickly reduce
the price of their labour. Such talents, though far from being common, are by no
means so tate as imagined. Many people possess them in great perfection, who disdain
to make this use of them; and many more are capable of acquiring them, if any thing
could be made honourably by them.

The over-weening conceit which the greater part of men have of their own abilities,
is an ancient evil remarked by the philosophers and moralists of all ages. Their absurd
presumption in their own good fortune has been less taken notice of. It is, however, if
possible, still more universal. There is no man living, who, when in tolerable health and
spirits, has not some share of it. The chance of gain is by every man more or less over-
valued, and the chance of loss is by most men under-valued, and by scarce any man,
who is in tolerable health and spirits, valued more than it is worth.

That the chance of gain is naturally overvalued, we may learn from the universal
success of lotteries. The world neither ever saw, nor ever will see, a perfectly fair lottery,
or one in which the whole gain compensated the whole loss; because the undertaker
could make nothing by it. In the state lotteries, the tickets are really not worth the
price which is paid by the original subscribers, and yet commonly sell in the market for
twenty, thirty, and sometimes forty per cent. advance. The vain hopes of gaining some
of the great prizes is the sole cause of this demand. The soberest people scarce look
upon it as a folly to pay a small sum for the chance of gaining ten or twenty thousand
pounds, though they know that even that small sum is perhaps twenty or thirty per
cent. more than the chance is worth. In a lottery in which no prize exceeded twenty
pounds, though in other respects it approached much nearer to a perfectly fair one than
the common state lotteries, there would not be the same demand for tickets. In order to
have a better chance for some of the great prizes, some people purchase several tickets;
and others, small shares in a still greater number. There is not, however, a more certain
proposition in mathematics, than that the more tickets you adventure upon, the more
likely you are to be a loser. Adventure upon all the tickets in the lottery, and you lose
for certain; and the greater the number of your tickets, the nearer you approach to this
certainty.

That the chance of loss is frequently undervalued, and scarce ever valued more
than it is worth, we may learn from the very moderate profit of insurers. In order to
make insurance, either from fire or sea-risk, a trade at all, the common premium must
be sufficient to compensate the common losses, to pay the expense of management,
and to afford such a profit as might have been drawn from an equal capital employed
in any common trade. The person who pays no more than this, evidently pays no more

ADAM SMITH

than the real value of the risk, or the lowest price at which he can reasonably expect to
insure it. But though many people have made a little money by insurance, very few have
made a great fortune; and, from this consideration alone, it seems evident enough that
the ordinary balance of profit and loss is not more advantageous in this than in other
common trades, by which so many people make fortunes. Moderate, however, as the
premium of insurance commonly is, many people despise the risk too much to care to
pay it. Taking the whole kingdom at an average, nineteen houses in twenty, or rather,
perhaps, ninety-nine in a hundred, are not insured from fire. Sea-risk is more alarming
to the greater part of people; and the proportion of ships insured to those not insured
is much greater. Many sail, however, at all seasons, and even in time of war, without
any insurance. This may sometimes, perhaps, be done without any imprudence. When
a great company, or even a great merchant, has twenty or thirty ships at sea, they
may, as it were, insure one another. The premium saved up on them all may more
than compensate such losses as they are likely to meet with in the common course
of chances. The neglect of insurance upon shipping, however, in the same manner
as upon houses, is, in most cases, the effect of no such nice calculation, but of mere
thoughtless rashness, and presumptuous contempt of the risk.

The contempt of risk, and the presumptuous hope of success, are in no period
of life more active than at the age at which young people choose their professions.
How little the fear of misfortune is then capable of balancing the hope of good luck,
appears still more evidently in the readiness of the common people to enlist as soldiers,
or to go to sea, than in the eagerness of those of better fashion to enter into what are
called the liberal professions.

What a common soldier may lose is obvious enough. Without regarding the danger,
however, young volunteers never enlist so readily as at the beginning of a new war;
and though they have scarce any chance of preferment, they figure to themselves, in

their youthful fancies, a thousand occasions of acquiring honour and distinction which
"never occur. These romantic hopes make the whole price of their blood. Their pay
is less than that of common labourers, and, in actual service, their fatigues are much
greater.

The lottery of the sea is not altogether so disadvantageous as that of the army.
The son of a creditable labourer or artificer may frequently go to sea with his father’s
consent; but if he enlists as a soldier, it is always without it. Other people see some
chance of his making something by the one trade; nobody but himself sees any of his
making any thing by the other. The great admiral is less the object of public admiration
than the great general; and the highest success in the sea service promises a less brilliant
fortune and reputation than equal success in the land. The same difference runs through
all the inferior degrees of preferment in both. By the rules of precedency, a captain
in the navy ranks with a colonel in the army; but he does not rank with him in the
common estimation. As the great prizes in the lottery are less, the smaller ones must
be more numerous. Common sailors, therefore, more frequently get some fortune and
preferment than common soldiers; and the hope of those prizes is what principally

THE WEALTH OF NATIONS

recommends the trade. Though their skill and dexterity are much superior to that of
almost any artificers; and though their whole life is one continual scene of hardship and
danger; yet for all this dexterity and skill, for all those hardships and dangers, while they
remain in the condition of common sailors, they receive scarce any other recompence
but the pleasure of exercising the one and of surmounting the other. Their wages are
not greater than those of common labourers at the port which regulates the rate of
seamen’s wages. As they are continually going from port to port, the monthly pay of
those who sail from all the different ports of Great Britain, is more nearly upon a level
than that of any other workmen in those different places; and the rate of the port to
and from which the greatest number sail, that is, the port of London, regulates that
of all the rest. At London, the wages of the greater part of the different classes of
workmen are about double those of the same classes at Edinburgh. But the sailors
who sail from the port of London, seldom earn above three or four shillings a month
more than those who sail from the port of Leith, and the difference is frequently not
so great. In time of peace, and in the merchant-service, the London price is from a
guinea to about seven-and-twenty shillings the calendar month. A common labourer
in London, at the rate of nine or ten shillings a week, may earn in the calendar month
from forty to five-and-forty shillings. The sailor, indeed, over and above his pay, 1s
supplied with provisions. Their value, however, may not perhaps always exceed the
difference between his pay and that of the common labourer; and though it sometimes
should, the excess will not be clear gain to the sailor, because he cannot share it with his
wife and family, whom he must maintain out of his wages at home.

The dangers and hair-breadth escapes of a life of adventures, instead of
disheartening young people, seem frequently to recommend a trade to them. A tender
mother, among the inferior ranks of people, is often afraid to send her son to school
at a sea-port town, lest the sight of the ships, and the conversation and adventures of
the sailors, should entice him to go to sea. The distant prospect of hazards, from which
we can hope to extricate ourselves by courage and address, is not disagreeable to us,
and does not raise the wages of labour in any employment. It is otherwise with those
in which courage and address can be of no avail. In trades which are known to be very
unwholesome, the wages of labour are always remarkably high. Unwholesomeness is a
species of disagreeableness, and its effects upon the wages of labour are to be ranked
under that general head.

In all the different employments of stock, the ordinary rate of profit varies more or
less with the certainty or uncertainty of the returns. These are, in general, less uncertain
in the inland than in the foreign trade, and in some branches of foreign trade than
in others; in the trade to North America, for example, than in that to Jamaica. The
ordinary rate of profit always rises more or less with the tisk. It does not, however,
seem to rise in proportion to it, or so as to compensate it completely. Bankruptcies are
most frequent in the most hazardous trades. The most hazardous of all trades, that of
a smugeler, though, when the adventure succeeds, it is likewise the most profitable, is
the infallible road to bankruptcy. The presumptuous hope of success seems to act here

ADAM SMITH

as upon all other occasions, and to entice so many adventurers into those hazardous
trades, that their competition reduces the profit below what is sufficient to compensate
the risk. To compensate it completely, the common returns ought, over and above the
ordinary profits of stock, not only to make up for all occasional losses, but to afford
a surplus profit to the adventurers, of the same nature with the profit of insurers. But
if the common returns were sufficient for all this, bankruptcies would not be more
frequent in these than in other trades.

Of the five circumstances, therefore, which vary the wages of labour, two only
affect the profits of stock; the agreeableness or disagreeableness of the business, and the
tisk or security with which it is attended. In point of agreeableness or disagreeableness,
there is little or no difference in the far greater part of the different employments of
stock, but a great deal in those of labour; and the ordinary profit of stock, though it
rises with the risk, does not always seem to rise in proportion to it. It should follow
from all this, that, in the same society or neighbourhood, the average and ordinary rates
of profit in the different employments of stock should be more nearly upon a level
than the pecuniary wages of the different sorts of labour.

They are so accordingly. The difference between the earnings of a common
labourer and those of a well employed lawyer or physician, is evidently much greater
than that between the ordinary profits in any two different branches of trade. The
apparent difference, besides, in the profits of different trades, is generally a deception
arising from our not always distinguishing what ought to be considered as wages, from
what ought to be considered as profit.

Apothecaries’ profit is become a bye-word, denoting something uncommonly
extravagant. This great apparent profit, however, is frequently no more than the
reasonable wages of labour. The skill of an apothecary is a much nicer and more
delicate matter than that of any artificer whatever; and the trust which is reposed in

him is of much greater importance. He is the physician of the poor in all cases, and
of the rich when the distress or danger is not very great. His reward, therefore, ought
to be suitable to his skill and his trust; and it arises generally from the price at which
he sells his drugs. But the whole drugs which the best employed apothecary in a large
market-town, will sell in a year, may not perhaps cost him above thirty or forty pounds.
Though he should sell them, therefore, for three or four hundred, or at a thousand per
cent. profit, this may frequently be no more than the reasonable wages of his labour,
charged, in the only way in which he can charge them, upon the price of his drugs. The
greater part of the apparent profit is real wages disguised in the garb of profit.

In a small sea-port town, a little grocer will make forty or fifty per cent. upon a
stock of a single hundred pounds, while a considerable wholesale merchant in the
same place will scarce make eight or ten pet cent. upon a stock of ten thousand. The
trade of the grocer may be necessary for the conveniency of the inhabitants, and the
narrowness of the market may not admit the employment of a larger capital in the
business. The man, however, must not only live by his trade, but live by it suitably to
the qualifications which it requires. Besides possessing a little capital, he must be able

THE WEALTH OF NATIONS

to read, write, and account and must be a tolerable judge, too, of perhaps fifty or sixty
different sorts of goods, their prices, qualities, and the markets where they are to be
had cheapest. He must have all the knowledge, in short, that is necessary for a great
merchant, which nothing hinders him from becoming but the want of a sufficient
capital. Thirty or forty pounds a year cannot be considered as too great a recompence
for the labour of a person so accomplished. Deduct this from the seemingly great
profits of his capital, and little more will remain, perhaps, than the ordinary profits of
stock. The greater part of the apparent profit is, in this case too, real wages.

The difference between the apparent profit of the retail and that of the wholesale
trade, is much less in the capital than in small towns and country villages. Where ten
thousand pounds can be employed in the grocery trade, the wages of the grocer’s
labour must be a very trifling addition to the real profits of so great a stock. The
apparent profits of the wealthy retailer, therefore, are there more nearly upon a level
with those of the wholesale merchant. It is upon this account that goods sold by retail
are generally as cheap, and frequently much cheaper, in the capital than in small towns
and country villages. Grocery goods, for example, are generally much cheaper; bread
and butchers’ meat frequently as cheap. It costs no more to bring grocery goods to
the great town than to the country village; but it costs a great deal more to bring corn
and cattle, as the greater part of them must be brought from a much greater distance.
The prime cost of grocery goods, therefore, being the same in both places, they are
cheapest where the least profit is charged upon them. The prime cost of bread and
butchers’ meat is greater in the great town than in the country village; and though the
profit is less, therefore they are not always cheaper there, but often equally cheap. In
such articles as bread and butchers’ meat, the same cause which diminishes apparent
profit, increases prime cost. The extent of the market, by giving employment to greater
stocks, diminishes apparent profit; but by requiring supplies from a greater distance, it
increases prime cost. This diminution of the one and increase of the other, seem, in
most cases, nearly to counterbalance one another; which is probably the reason that,
though the prices of corn and cattle are commonly very different in different parts
of the kingdom, those of bread and butchers’ meat are generally very nearly the same
through the greater part of it.

Though the profits of stock, both in the wholesale and retail trade, are generally less
in the capital than in small towns and country villages, yet great fortunes are frequently
acquired from small beginnings in the former, and scarce ever in the latter. In small
towns and country villages, on account of the narrowness of the market, trade cannot
always be extended as stock extends. In such places, therefore, though the rate of a
particular person’s profits may be very high, the sum or amount of them can never be
very great, nor consequently that of his annual accumulation. In great towns, on the
contrary, trade can be extended as stock increases, and the credit of a frugal and thriving
man increases much faster than his stock. His trade is extended in proportion to the
amount of both; and the sum or amount of his profits is in proportion to the extent
of his trade, and his annual accumulation in proportion to the amount of his profits. It

ADAM SMITH

seldom happens, however, that great fortunes are made, even in great towns, by any one
regular, established, and well-known branch of business, but in consequence of a long
life of industry, frugality, and attention. Sudden fortunes, indeed, are sometimes made
in such places, by what is called the trade of speculation. The speculative merchant
exercises no one regular, established, or well-known branch of business. He is a corn
merchant this year, and a wine merchant the next, and a sugar, tobacco, or tea merchant
the year after. He enters into every trade, when he foresees that it is likely to lie more
than commonly profitable, and he quits it when he foresees that its profits are likely to
return to the level of other trades. His profits and losses, therefore, can bear no regular
proportion to those of any one established and well-known branch of business. A bold
adventurer may sometimes acquire a considerable fortune by two or three successful
speculations, but is just as likely to lose one by two or three unsuccessful ones. This
trade can be carried on nowhere but in great towns. It is only in places of the most
extensive commerce and correspondence that the intelligence requisite for it can be
had.

The five circumstances above mentioned, though they occasion considerable
inequalities in the wages of labour and profits of stock, occasion none in the whole
of the advantages and disadvantages, real or imaginary, of the different employments
of either. The nature of those circumstances is such, that they make up for a small
pecuniary gain in some, and counterbalance a great one in others.

In order, however, that this equality may take place in the whole of their advantages
or disadvantages, three things are requisite, even where there is the most perfect freedom.
First the employments must be well known and long established in the neighbourhood;
secondly, they must be in their ordinary, or what may be called their natural state; and,
thirdly, they must be the sole or principal employments of those who occupy them.

First, This equality can take place only in those employments which are well known,

and have been long established in the neighbourhood.

. Where all other circumstances are equal, wages are generally higher in new than in
old trades. When a projector attempts to establish a new manufacture, he must at first
entice his workmen from other employments, by higher wages than they can either
earn in their own trades, or than the nature of his work would otherwise require; and a
considerable time must pass away before he can venture to reduce them to the common
level. Manufactures for which the demand arises altogether from fashion and fancy, are
continually changing, and seldom last long enough to be considered as old established
manufactures. Those, on the contrary, for which the demand arises chiefly from use or
necessity, are less liable to change, and the same form or fabric may continue in demand
for whole centuries together. The wages of labour, therefore, are likely to be higher in
manufactures of the former, than in those of the latter kind. Birmingham deals chiefly
in manufactures of the former kind; Sheffield in those of the latter; and the wages
of labour in those two different places are said to be suitable to this difference in the
nature of their manufactures.

The establishment of any new manufacture, of any new branch of commerce, or

THE WEALTH OF NATIONS

of any new practice in agriculture, is always a speculation from which the projector
promises himself extraordinary profits. These profits sometimes ate very great, and
sometimes, more frequently, perhaps, they are quite otherwise; but, in general, they bear
no regular proportion to those of other old trades in the neighbourhood. If the project
succeeds, they ate commonly at first very high. When the trade or practice becomes
thoroughly established and well known, the competition reduces them to the level of
other trades.

Secondly, this equality in the whole of the advantages and disadvantages of the
different employments of labour and stock, can take place only in the ordinary, or what
may be called the natural state of those employments.

The demand for almost every different species of labour is sometimes greater,
and sometimes less than usual. In the one case, the advantages of the employment rise
above, in the other they fall below the common level. The demand for country labour is
greater at hay-time and harvest than during the greater part of the year; and wages rise
with the demand. In time of war, when forty or fifty thousand sailors are forced from
the merchant service into that of the king, the demand for sailors to merchant ships
necessarily rises with their scarcity; and their wages, upon such occasions, commonly
rise from a guinea and seven-and-twenty shillings to forty shilling’s and three pounds
a-month. In a decaying manufacture, on the contrary, many workmen, rather than quit
their own trade, are contented with smaller wages than would otherwise be suitable to
the nature of their employment.

The profits of stock vary with the price of the commodities in which it is employed.
As the price of any commodity rises above the ordinary or average rate, the profits of
at least some part of the stock that is employed in bringing it to market, rise above their
proper level, and as it falls they sink below it. All commodities are more or less liable
to variations of price, but some are much more so than others. In all commodities
which are produced by human industry, the quantity of industry annually employed is
necessarily regulated by the annual demand, in such a manner that the average annual
produce may, as nearly as possible, be equal to the average annual consumption. In
some employments, it has already been observed, the same quantity of industry will
always produce the same, or very nearly the same quantity of commodities. In the
linen or woollen manufactures, for example, the same number of hands will annually
work up very nearly the same quantity of linen and woollen cloth. The variations in
the market price of such commodities, therefore, can arise only from some accidental
variation in the demand. A public mourning raises the price of black cloth. But as the
demand for most sorts of plain linen and woollen cloth is pretty uniform, so is likewise
the price. But there are other employments in which the same quantity of industry will
not always produce the same quantity of commodities. The same quantity of industry,
for example, will, in different years, produce very different quantities of corn, wine,
hops, sugar tobacco, etc. The price of such commodities, therefore, varies not only
with the variations of demand, but with the much greater and more frequent variations
of quantity, and is consequently extremely fluctuating; but the profit of some of the

ADAM SMITH

dealers must necessarily fluctuate with the price of the commodities. The operations
of the speculative merchant are principally employed about such commodities, He
endeavours to buy them up when he foresees that their price is likely to rise, and to sell
them when it is likely to fall.

Thirdly, this equality in the whole of the advantages and disadvantages of the
different employments of labour and stock, can take place only in such as are the sole
ot principal employments of those who occupy them.

When a person derives his subsistence from one employment, which does not
occupy the greater part of his time, in the intervals of his leisure he is often willing to
work at another for less wages than would otherwise suit the nature of the employment.

There still subsists, in many parts of Scotland, a set of people called cottars or
cottagers, though they were more frequent some years ago than they are now. They
are a sort of out-servants of the landlords and farmers. The usual reward which they
receive from their master is a house, a small garden for pot-herbs, as much grass as
will feed a cow, and, perhaps, an acre or two of bad arable land. When their master has
occasion for their labour, he gives them, besides, two pecks of oatmeal a-week, worth
about sixteen pence sterling. During a great part of the year, he has little or no occasion
for their labour, and the cultivation of their own little possession is not sufficient to
occupy the time which 1s left at their own disposal. When such occupiers were more
numerous than they are at present, they are said to have been willing to give their spare
time for a very small recompence to any body, and to have wrought for less wages than
other labourers. In ancient times, they seem to have been common all over Europe. In
countries ill cultivated, and worse inhabited, the greater part of landlords and farmers
could not otherwise provide themselves with the extraordinary number of hands which
country labour requires at certain seasons. The daily or weekly recompence which such
labourers occasionally received from their masters, was evidently not the whole price

of their labour. Their small tenement made a considerable part of it. This daily or
weekly recompence, however, seems to have been considered as the whole of it, by
many writers who have collected the prices of labour and provisions in ancient times,
and who have taken pleasure in representing both as wonderfully low.

The produce of such labour comes frequently cheaper to market than would
otherwise be suitable to its nature. Stockings, in many parts of Scotland, are knit much
cheaper than they can anywhere be wrought upon the loom. They are the work of
servants and labourers who derive the principal part of their subsistence from some
other employment. More than a thousand pair of Shetland stockings are annually
imported into Leith, of which the price is from frvepence to seven-pence a pair. At
Lerwick, the small capital of the Shetland islands, tenpence a-day, I have been assured,
is a common price of common labour. In the same islands, they knit worsted stockings
to the value of a guinea a pair and upwards.

The spinning of linen yarn is carried on in Scotland nearly in the same way as the
knitting of stockings, by servants, who are chiefly hired for other purposes. They earn
but a very scanty subsistence, who endeavour to get their livelihood by either of those

THE WEALTH OF NATIONS

trades. In most parts of Scotland, she is a good spinner who can earn twentypence
a-week.

In opulent countries, the market is generally so extensive, that any one trade is
sufficient to employ the whole labour and stock of those who occupy it. Instances of
people living by one employment, and, at the same time, deriving some little advantage
from another, occur chiefly in pour countries. The following instance, however, of
something of the same kind, is to be found in the capital of a very rich one. There is
no city in Europe, I believe, in which house-rent is dearer than in London, and yet I
know no capital in which a furnished apartment can be hired so cheap. Lodging is not
only much cheaper in London than in Paris; it is much cheaper than in Edinburgh,
of the same degree of goodness; and, what may seem extraordinary, the dearness of
house-rent is the cause of the cheapness of lodging. The dearness of house-rent in
London arises, not only from those causes which render it dear in all great capitals, the
dearness of labour, the dearness of all the materials of building, which must generally
be brought from a great distance, and, above all, the dearness of ground-rent, every
landlord acting the part of a monopolist, and frequently exacting a higher rent for a
single acre of bad land in a town, than can be had for a hundred of the best in the
country; but it arises in part from the peculiar manners and customs of the people,
which oblige every master of a family to hire a whole house from top to bottom. A
dwelling-house in England means every thing that is contained under the same roof.
In France, Scotland, and many other parts of Europe, it frequently means no more
than a single storey. A tradesman in London is obliged to hire a whole house in that
part of the town where his customers live. His shop is upon the ground floor, and he
and his family sleep in the garret; and he endeavours to pay a part of his house-rent by
letting the two middle storeys to lodgers. He expects to maintain his family by his trade,
and not by his lodgers. Whereas at Paris and Edinburgh, people who let lodgings have
commonly no other means of subsistence; and the price of the lodging must pay, not
only the rent of the house, but the whole expense of the family.

PART IT.

Inequalities occasioned by the Policy of Europe.

Such are the inequalities in the whole of the advantages and disadvantages of
the different employments of labour and stock, which the defect of any of the three
requisites above mentioned must occasion, even where there is the most perfect liberty.
But the policy of Europe, by not leaving things at perfect liberty, occasions other
inequalities of much greater importance.

It does this chiefly in the three following ways. First, by restraining the competition
in some employments to a smaller number than would otherwise be disposed to enter
into them; secondly, by increasing it in others beyond what it naturally would be; and,
thirdly, by obstructing the free circulation of labour and stock, both from employment
to employment, and from place to place.

First, The policy of Europe occasions a very important inequality in the whole of
the advantages and disadvantages of the different employments of labour and stock,
by restraining the competition in some employments to a smaller number than might
otherwise be disposed to enter into them.

The exclusive privileges of corporations are the principal means it makes use of
for this purpose.

The exclusive privilege of an incorporated trade necessarily restrains the
competition, in the town where it is established, to those who are free of the trade.
To have served an apprenticeship in the town, under a master properly qualified, is
commonly the necessary requisite for obtaining this freedom. The bye-laws of the
_corporation regulate sometimes the number of apprentices which any master 1s allowed
to have, and almost always the number of years which each apprentice is obliged to
setve. The intention of both regulations is to restrain the competition to a much smaller
number than might otherwise be disposed to enter into the trade. The limitation of the
number of apprentices restrains it directly. A long term of apprenticeship restrains it
more indirectly, but as effectually, by increasing the expense of education.

In Sheffield, no master cutler can have more than one apprentice at a time, by
a bye-law of the corporation. In Norfolk and Norwich, no master weaver can have
more than two apprentices, under pain of forfeiting five pounds a-month to the king.
No master hatter can have more than two apprentices anywhere in England, or in the
English plantations, under pain of forfeiting; frve pounds a-month, half to the king,
and half to him who shall sue in any court of record. Both these regulations, though
they have been confirmed by a public law of the kingdom, are evidently dictated by the
same corporation-spirit which enacted the bye-law of Sheffield. The silk-weavers in
London had scarce been incorporated a year, when they enacted a bye-law, restraining
any master from having more than two apprentices at a time. It required a particular act

ere)

THE WEALTH OF NATIONS

of parliament to rescind this bye-law.

Seven years seem anciently to have been, all over Europe, the usual term established
for the duration of apprenticeships in the greater part of incorporated trades. All
such incorporations were anciently called universities, which, indeed, is the proper
Latin name for any incorporation whatever. The university of smiths, the university
of tailors, etc. are expressions which we commonly meet with in the old charters of
ancient towns. When those particular incorporations, which are now peculiarly called
universities, were first established, the term of years which it was necessary to study,
in order to obtain the degree of master of arts, appears evidently to have been copied
from the term of apprenticeship in common trades, of which the incorporations were
much more ancient. As to have wrought seven years under a master properly qualified,
was necessary, in order to entitle my person to become a master, and to have himself
apprentices in a common trade; so to have studied seven years under a master properly
qualified, was necessary to entitle him to become a master, teacher, or doctor (words
anciently synonymous), in the liberal arts, and to have scholars or apprentices (words
likewise originally synonymous) to study under him.

By the 5th of Elizabeth, commonly called the Statute of Apprenticeship, it was
enacted, that no person should, for the future, exercise any trade, craft, or mystery, at
that time exercised in England, unless he had previously served to it an apprenticeship
of seven years at least; and what before had been the bye-law of many particular
corporations, became in England the general and public law of all trades carried on
in market towns. For though the words of the statute are very general, and seem
plainly to include the whole kingdom, by interpretation its operation has been limited
to market towns; it having been held that, in country villages, a person may exercise
several different trades, though he has not served a seven years apprenticeship to each,
they being necessary for the conveniency of the inhabitants, and the number of people
frequently not being sufficient to supply each with a particular set of hands. By a strict
interpretation of the words, too, the operation of this statute has been limited to those
trades which were established in England before the 5th of Elizabeth, and has never
been extended to such as have been introduced since that time. This limitation has
given occasion to several distinctions, which, considered as rules of police, appear
as foolish as can well be imagined. It has been adjudged, for example, that a coach-
maker can neither himself make nor employ journeymen to make his coach-wheels,
but must buy them of a master wheel-wright; this latter trade having been exercised in
England before the 5th of Elizabeth. But a wheel-wright, though he has never served
an apprenticeship to a coachmaker, may either himself make or employ journeymen
to make coaches; the trade of a coachmaker not being within the statute, because not
exercised in England at the time when it was made. The manufactures of Manchester,
Birmingham, and Wolverhampton, are many of them, upon this account, not within
the statute, not having been exercised in England before the 5th of Elizabeth.

In France, the duration of apprenticeships is different in different towns and in
different trades. In Paris, five years is the term required in a great number; but, before

]

ADAM SMITH

any person can be qualified to exercise the trade as a master, he must, in many of
them, serve five years more as a journeyman. During this latter term, he is called the
companion of his master, and the term itself is called his companionship.

In Scotland, there is no general law which regulates universally the duration of
apprenticeships. The term is different in different corporations. Where it is long, a part
of it may generally be redeemed by paying a small fine. In most towns, too, a very small
fine is sufficient to purchase the freedom of any corporation. The weavers of linen and
hempen cloth, the principal manufactures of the country, as well as all other artificers
subservient to them, wheel-makers, reel-makers, etc. may exercise their trades in any
town-corporate without paying any fine. In all towns-corporate, all persons are free
to sell butchers’ meat upon any lawful day of the week. Three years is, in Scotland, a
common term of apprenticeship, even in some very nice trades; and, in general, I know
of no country in Europe, in which corporation laws are so little oppressive.

The property which every man has in his own labour, as it is the original foundation
of all other property, so it is the most sacred and inviolable. The patrimony of a
poor man lies in the strength and dexterity of his hands; and to hinder him from
employing this strength and dexterity in what manner he thinks proper, without injury
to his neighbour, is a plain violation of this most sacred property. It is a manifest
encroachment upon the just liberty, both of the workman, and of those who might be
disposed to employ him. As it hinders the one from working at what he thinks proper,
so it hinders the others from employing whom they think proper. To judge whether he
is fit to be employed, may surely be trusted to the discretion of the employers, whose
interest it so much concerns. The affected anxiety of the lawgiver, lest they should
employ an improper person, is evidently as impertinent as it is oppressive.

The institution of long apprenticeships can give no security that insufficient
workmanship shall not frequently be exposed to public sale. When this is done, it is

generally the effect of fraud, and not of inability; and the longest apprenticeship can
give no security against fraud. Quite different regulations are necessary to prevent this
abuse. The sterling mark upon plate, and the stamps upon linen and woollen cloth, give
the purchaser much greater security than any statute of apprenticeship. He generally
looks at these, but never thinks it worth while to enquire whether the workman had
served a seven years apprenticeship.

The institution of long apprenticeships has no tendency to form young people to
industry. A journeyman who works by the piece is likely to be industrious, because he
derives a benefit from every exertion of his industry. An apprentice is likely to be idle,
and almost always is so, because he has no immediate interest to be otherwise. In the
inferior employments, the sweets of labour consist altogether in the recompence of
labour. They who are soonest in a condition to enjoy the sweets of it, are likely soonest
to conceive a relish for it, and to acquire the early habit of industry. A young man
naturally conceives an aversion to labour, when for a long time he receives no benefit
from it. The boys who are put out apprentices from public charities are generally bound
for more than the usual number of years, and they generally turn out very idle and

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worthless.

Apprenticeships were altogether unknown to the ancients. The reciprocal duties of
master and apprentice make a considerable article in every modern code. The Roman
law is perfectly silent with regard to them. I know no Greek or Latin word (I might
venture, I believe, to assert that there is none) which expresses the idea we now annex
to the word apprentice, a servant bound to work at a particular trade for the benefit of
a master, during a term of years, upon condition that the master shall teach him that
trade.

Long apprenticeships are altogether unnecessary. The arts, which are much superior
to common trades, such as those of making clocks and watches, contain no such
mystery as to require a long course of instruction. The first invention of such beautiful
machines, indeed, and even that of some of the instruments employed in making them,
must no doubt have been the work of deep thought and long time, and may justly be
considered as among the happiest efforts of human ingenuity. But when both have been
fairly invented, and are well understood, to explain to any young man, in the completest
manner, how to apply the instruments, and how to construct the machines, cannot
well require more than the lessons of a few weeks; perhaps those of a few days might
be sufficient. In the common mechanic trades, those of a few days might certainly be
sufficient. The dexterity of hand, indeed, even in common trades, cannot be acquired
without much practice and experience. But a young man would practice with much
mote diligence and attention, if from the beginning he wrought as a journeyman, being
paid in proportion to the little work which he could execute, and paying in his turn for
the materials which he might sometimes spoil through awkwardness and inexperience.
His education would generally in this way be more effectual, and always less tedious
and expensive. The master, indeed, would be a loser. He would lose all the wages of
the apprentice, which he now saves, for seven years together. In the end, perhaps, the
apprentice himself would be a loser. In a trade so easily learnt he would have more
competitors, and his wages, when he came to be a complete workman, would be much
less than at present. The same increase of competition would reduce the profits of the
masters, as well as the wages of workmen. The trades, the crafts, the mysteries, would
all be losers. But the public would be a gainer, the work of all artificers coming in this
way much cheaper to market.

It is to prevent his reduction of price, and consequently of wages and profit,
by restraining that free competition which would most certainly occasion it, that all
corporations, and the greater part of corporation laws have been established. In order
to erect a corporation, no other authority in ancient times was requisite, in many parts
of Europe, but that of the town-corporate in which it was established. In England,
indeed, a charter from the king was likewise necessary. But this prerogative of the crown
seems to have been reserved rather for extorting money from the subject, than for the
defence of the common liberty against such oppressive monopolies. Upon paying a
fine to the king, the charter seems generally to have been readily granted; and when any
particular class of artificers or traders thought proper to act as a corporation, without a

ADAM SMITH

charter, such adulterine guilds, as they were called, were not always disfranchised upon
that account, but obliged to fine annually to the king, for permission to exercise their
usurped privileges {See Madox Firma Burgi p. 26 etc.}. The immediate inspection of
all corporations, and of the bye-laws which they might think proper to enact for their
own government, belonged to the town-corporate in which they were established; and
whatever discipline was exercised over them, proceeded commonly, not from the king,
but from that greater incorporation of which those subordinate ones were only parts
or members.

The government of towns-corporate was altogether in the hands of traders and
artificers, and it was the manifest interest of every particular class of them, to prevent
the market from being overstocked, as they commonly express it, with their own
particular species of industry; which is in reality to keep it always understocked. Each
class was eager to establish regulations proper for this purpose, and, provided it was
allowed to do so, was willing to consent that every other class should do the same.
In consequence of such regulations, indeed, each class was obliged to buy the goods
they had occasion for from every other within the town, somewhat dearer than they
otherwise might have done. But, in recompence, they were enabled to sell their own just
as much dearer; so that, so far it was as broad as long, as they say; and in the dealings
of the different classes within the town with one another, none of them were losers by
these regulations. But in their dealings with the country they were all great gainers; and
in these latter dealings consist the whole trade which supports and enriches every town.

Every town draws its whole subsistence, and all the materials of its industry, from
the: country. It pays for these chiefly in two ways. First, by sending back to the country
a part of those materials wrought up and manufactured; in which case, their price is
augmented by the wages of the workmen, and the profits of their masters or immediate
employers; secondly, by sending to it a part both of the rude and manufactured produce,

either of other countries, or of distant parts of the same country, imported into the
~ town; in which case, too, the original price of those goods is augmented by the wages of
the carriers or sailors, and by the profits of the merchants who employ them. In what is
gained upon the first of those branches of commerce, consists the advantage which the
town makes by its manufactures; in what is gained upon the second, the advantage of its
inland and foreign trade. The wages of the workmen, and the profits of their different
employers, make up the whole of what is gained upon both. Whatever regulations,
therefore, tend to increase those wages and profits beyond what they otherwise: would
be, tend to enable the town to purchase, with a smaller quantity of its labour, the
produce of a greater quantity of the labour of the country. They give the traders and
artificers in the town an advantage over the landlords, farmers, and labourers, in the
country, and break down that natural equality which would otherwise take place in the
commerce which is carried on between them. The whole annual produce of the labour
of the society is annually divided between those two different sets of people. By means
of those regulations, a greater share of it is given to the inhabitants of the town than
would otherwise fall to them, and a less to those of’ the country.

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The price which the town really pays for the provisions and materials annually
imported into it, is the quantity of manufactures and other goods annually exported
from it. The dearer the latter are sold, the cheaper the former are bought. The industry
of the town becomes more, and that of the country less advantageous.

That the industry which is carried on in towns is, everywhere in Europe, more
advantageous than that which is carried on in the country, without entering into any
vety nice computations, we may satisfy ourselves by one very simple and obvious
observation. In every country of Europe, we find at least a hundred people who have
acquired great fortunes, from small beginnings, by trade and manufactures, the industry
which properly belongs to towns, for one who has done so by that which properly
belongs to the country, the raising of rude produce by the improvement and cultivation
of land. Industry, therefore, must be better rewarded, the wages of labour and the
profits of stock must evidently be greater, in the one situation than in the other. But
stock and labour naturally seek the most advantageous employment. They naturally,
therefore, resort as much as they can to the town, and desert the country.

The inhabitants of a town being collected into one place, can easily combine
together. The most insignificant trades carried on in towns have, accordingly, in some
place or other, been incorporated; and even where they have never been incorporated,
yet the corporation-spirit, the jealousy of strangers, the aversion to take apprentices,
or to communicate the secret of their trade, generally prevail in them, and often teach
them, by voluntary associations and agreements, to prevent that free competition which
they cannot prohibit by bye-laws. The trades which employ but a small number of
hands, run most easily into such combinations. Half-a-dozen wool-combers, perhaps,
are necessaty to keep a thousand spinners and weavers at work. By combining not to
take apprentices, they can not only engross the employment, but reduce the whole
manufacture into a sort of slavery to themselves, and raise the price of their labour
much above what is due to the nature of their work.

The inhabitants of the country, dispersed in distant places, cannot easily combine
together. They have not only never been incorporated, but the incorporation spirit
never has prevailed among them. No apprenticeship has ever been thought necessary
to qualify for husbandry, the great trade of the country. After what ate called the fine
arts, and the liberal professions, however, there is perhaps no trade which requires so
great a variety of knowledge and experience. The innumerable volumes which have
been written upon it in all languages, may satisfy us, that among the wisest and most
learned nations, it has never been regarded as a matter very easily understood. And from
all those volumes we shall in vain attempt to collect that knowledge of its various and
complicated operations which is commonly possessed even by the common farmer;
how contemptuously soever the very contemptible authors of some of them may
sometimes affect to speak of him. Thete is scarce any common mechanic trade, on ihe
contrary, of which all the operations may not be as completely and distinctly explained
in a pamphlet of a very few pages, as it is possible for words illustrated by figures
to explain them. In the history of the arts, now publishing by the French Academy

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of Sciences, several of them are actually explained in this manner. The direction of
operations, besides, which must be varied with every change of the weather, as well as
with many other accidents, requires much more judgment and discretion, than that of
those which are always the same, or very nearly the same.

Not only the art of the farmer, the general direction of the operations of
husbandry, but many inferior branches of country labour require much more skill and
experience than the greater part of mechanic trades. The man who works upon brass
and iron, works with instruments, and upon materials of which the temper is always
the same, or very nearly the same. But the man who ploughs the ground with a team
of horses or oxen, works with instruments of which the health, strength, and temper,
are very different upon different occasions. The condition of the materials which
he works upon, too, is as variable as that of the instruments which he works with,
and both require to be managed with much judgment and discretion. The common
ploughman, though generally regarded as the pattern of stupidity and ignorance, is
seldom defective in this judgment and discretion. He is less accustomed, indeed, to
social intercourse, than the mechanic who lives in a town. His voice and language are
more uncouth, and more difficult to be understood by those who are not used to them.
His understanding, however, being accustomed to consider a greater variety of objects,
is generally much superior to that of the other, whose whole attention, from morning
till night, is commonly occupied in performing one or two very simple operations.
How much the lower ranks of people in the country are really superior to those of the
town, is well known to every man whom either business or curiosity has led to converse
much with both. In China and Indostan, accordingly, both the rank and the wages of
country labourers are said to be superior to those of the greater part of artificers and
manufacturers. They would probably be so everywhere, if corporation laws and the
corporation spirit did not prevent it.

The superiority which the industry of the towns has everywhere in Europe over
that of the country, is not altogether owing to corporations and corporation laws. It is
supported by many other regulations. The high duties upon foreign manufactures, and
upon all goods imported by alien merchants, all tend to the same purpose. Corporation
laws enable the inhabitants of towns to raise their prices, without fearing to be
undersold by the free competition of their own countrymen. Those other regulations
secure them equally against that of foreigners. The enhancement of price occasioned
by both is everywhere finally paid by the landlords, farmers, and labourers, of the
country, who have seldom opposed the establishment of such monopolies. They have
commonly neither inclination nor fitness to enter into combinations; and the clamour
and sophistry of merchants and manufacturers easily persuade them, that the private
interest of a part, and of a subordinate part, of the society, is the general interest of
the whole.

In Great Britain, the superiority of the industry of the towns over that of the
countty seems to have been greater formerly than in the present times. The wages of
country labour approach nearer to those of manufacturing labour, and the profits of

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stock employed in agriculture to those of trading and manufacturing stock, than they
are said to have none in the last century, or in the beginning of the present. This change
may be regarded as the necessary, though very late consequence of the extraordinary
encouragement given to the industry of the towns. The stocks accumulated in them
come in time to be so great, that it can no longer be employed with the ancient profit in
that species of industry which is peculiar to them. That industry has its limits like every
other; and the increase of stock, by increasing the competition, necessarily reduces the
profit. The lowering of profit in the town forces out stock to the country, where, by
creating a new demand for country labour, it necessarily raises its wages. It then spreads
itself, if I my say so, over the face of the land, and, by being employed in agriculture,
is in part restored to the country, at the expense of which, in a great measure, it had
originally been accumulated in the town. That everywhere in Europe the greatest
improvements of the country have been owing to such over flowings of the stock
originally accumulated in the towns, I shall endeavour to shew hereafter, and at the
same time to demonstrate, that though some countries have, by this course, attained to
a considerable degree of opulence, it is in itself necessarily slow, uncertain, liable to be
disturbed and interrupted by innumerable accidents, and, in every respect, contrary to
the order of nature and of reason. The interests, prejudices, laws, and customs, which
have given occasion to it, I shall endeavour to explain as fully and distinctly as I can in
the third and fourth books of this Inquiry.

People of the same trade seldom meet together, even for merriment and diversion,
but the conversation ends in a conspiracy against the public, or in some contrivance to
raise prices. It is impossible, indeed, to prevent such meetings, by any law which either
could be executed, or would be consistent with liberty and justice. But though the law
cannot hinder people of the same trade from sometimes assembling together, it ought
to do nothing to facilitate such assemblies, much less to render them necessary.

A regulation which obliges all those of the same trade in a particular town to enter
their names and places of abode in a public register, facilitates such assemblies. It
connects individuals who might never otherwise be known to one another, and gives
every man of the trade a direction where to find every other man of it.

A regulation which enables those of the same trade to tax themselves, in order to
provide for their poor, their sick, theit widows and orphans, by giving them a common
interest to manage, renders such assemblies necessary.

An incorporation not only renders them necessary, but makes the act of the majority
binding upon the whole. Ina free trade, an effectual combination cannot be established
but by the unanimous consent of every single trader, and it cannot last longer than
every single trader continues of the same mind. The majority of a corporation can
enact a bye-law, with proper penalties, which will limit the competition mote effectually
and more durably than any voluntary combination whatever.

The pretence that corporations are necessary for the better government of the
trade, is without any foundation. The real and effectual discipline which is exercised
over a workman, is not that of his corporation, but that of his customers. It is the fear

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of losing their employment which restrains his frauds and corrects his negligence. An
exclusive corporation necessarily weakens the force of this discipline. A particular set
of workmen must then be employed, let them behave well or ill. It is upon this account
that, in many large incorporated towns, no tolerable workmen are to be found, even in
some of the most necessary trades. If you would have your work tolerably executed, it
must be done in the suburbs, where the workmen, having no exclusive privilege, have
nothing but their character to depend upon, and you must then smuggle it into the
town as well as you can.

It is in this manner that the policy of Europe, by restraining the competition in
some employments to a smaller number than would otherwise be disposed to enter
into them, occasions a very important inequality in the whole of the advantages and
disadvantages of the different employments of labour and stock.

Secondly, The policy of Europe, by increasing the competition in some employments
beyond what it naturally would be, occasions another inequality, of an opposite kind,
in the whole of the advantages and disadvantages of the different employments of
labour and stock.

It has been considered as of so much importance that a proper number of young
people should be educated for certain professions, that sometimes the public, and
sometimes the piety of private founders, have established many pensions, scholarships,
exhibitions, bursaries, etc. for this purpose, which draw many more people into those
trades than could otherwise pretend to follow them. In all Christian countries, I believe,
the education of the greater part of churchmen is paid for in this manner. Very few of
them are educated altogether at their own expense. The long, tedious, and expensive
education, therefore, of those who are, will not always procure them a suitable reward,
the church being crowded with people, who, in order to get employment, are willing to
accept of a much smaller recompence than what such an education would otherwise
have entitled them to; and in this manner the competition of the poor takes away the
reward of the rich. It would be indecent, no doubt, to compare either a curate or a
chaplain with a journeyman in any common trade. The pay of a curate or chaplain,
however, may very properly be considered as of the same nature with the wages of
a journeyman. They are all three paid for their work according to the contract which
they may happen to make with their respective superiors. Till after the middle of the
fourteenth century, five merks, containing about as much silver as ten pounds of our
present money, was in England the usual pay of a curate or a stipendiary parish priest,
as we find it regulated by the decrees of several different national councils. At the
same period, fourpence a-day, containing the same quantity of silver as a shilling of
our present money, was declared to be the pay of a master mason; and threepence
a-day, equal to ninepence of our present money, that of a journeyman mason. {See
the Statute of Labourers, 25, Ed. III.} The wages of both these labourer’s, therefore,
supposing them to have been constantly employed, were much superior to those of
the curate. The wages of the master mason, supposing him to have been without
employment one-third of the year, would have fully equalled them. By thes 2thiof

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Queen Anne, c. 12. it is declared, “That whereas, for want of sufficient maintenance
and encouragement to curates, the cures have, in several places, been meanly supplied,
the bishop is, therefore, empowered to appoint, by writing under his hand and seal, a
sufficient certain stipend or allowance, not exceeding fifty, and not less than twenty
pounds a-year”. Forty pounds a-year is reckoned at present very good pay for a curate;
and, notwithstanding this act of parliament, there are many curacies under twenty
pounds a-year. There are journeymen shoemakers in London who earn forty pounds
a-yeat, and there is scarce an industrious workman of any kind in that metropolis
who does not earn more than twenty. This last sum, indeed, does not exceed what
frequently earned by common labourers in many country parishes. Whenever the law
has attempted to regulate the wages of workmen, it has always been rather to lower
them than to raise them. But the law has, upon many occasions, attempted to raise the
wages of curates, and, for the dignity of the church, to oblige the rectors of parishes to
give them more than the wretched maintenance which they themselves might be willing
to accept of. And, in both cases, the law seems to have been equally ineffectual, and has
never either been able to raise the wages of curates, or to sink those of labourers to the
degree that was intended; because it has never been able to hinder either the one from
being willing to accept of less than the legal allowance, on account of the indigence
of their situation and the multitude of their competitors, or the other from recetving
more, on account of the contrary competition of those who expected to derive either
profit or pleasure from employing them.

The great benefices and other ecclesiastical dignities support the honour of the
church, notwithstanding the mean circumstances of some of its inferior members.
The respect paid to the profession, too, makes some compensation even to them for
the meanness of their pecuniary recompence. In England, and in all Roman catholic
countries, the lottery of the church is in reality much more advantageous than is
necessary. The example of the churches of Scotland, of Geneva, and of several other
protestant churches, may satisfy us, that in so creditable a profession, in which education
is so easily procured, the hopes of much more moderate benefices will draw a sufficient
number of learned, decent, and respectable men into holy orders.

In professions in which there are no benefices, such as law and physic, if an equal
proportion of people were educated at the public expense, the competition would soon
be so great as to sink very much their pecuniary reward. It might then not be worth any
man’s while to educate his son to either of those professions at his own expense. They
would be entirely abandoned to such as had been educated by those public charities,
whose numbers and necessities would oblige them in general to content themselves
with a very miserable recompence, to the entire degradation of the now respectable
professions of law and physic.

That unprosperous race of men, commonly called men of letters, are pretty much
in the situation which lawyers and physicians probably would be in, upon the foregoing
supposition. In every part of Europe, the greater part of them have been educated
for the church, but have been hindered by different reasons from entering into holy

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orders. They have generally, therefore, been educated at the public expense; and their
numbers are everywhere so great, as commonly to reduce the price of their labour to
a vety paltry recompence.

Before the invention of the art of printing, the only employment by which a man
of letters could make any thing by his talents, was that of a public or private teacher,
or by communicating to other people the curious and useful knowledge which he had
acquired himself; and this is still surely a more honourable, a more useful, and, in general,
even a more profitable employment than that other of writing for a bookseller, to which
the art of printing has given occasion. The time and study, the genius, knowledge, and
application requisite to qualify an eminent teacher of the sciences, are at least equal to
what is necessary for the greatest practitioners in law and physic. But the usual reward
of the eminent teacher bears no proportion to that of the lawyer or physician, because
the trade of the one is crowded with indigent people, who have been brought up to it
at the public expense; whereas those of the other two are encumbered with very few
who have not been educated at their own. The usual recompence, however, of public
and private teachers, small as it may appear, would undoubtedly be less than it is, if the
competition of those yet more indigent men of letters, who write for bread, was not
taken out of the market. Before the invention of the art of printing, a scholar and a
beggar seem to have been terms very nearly synonymous. The different governors of
the universities, before that time, appear to have often granted licences to their scholars
to beg.

In ancient times, before any charities of this kind had been established for the
education of indigent people to the learned professions, the rewards of eminent teachers
appear to have been much more considerable. Isocrates, in what is called his discourse
against the sophists, reproaches the teachers of his own times with inconsistency. “They
make the most magnificent promises to their scholars,” says he, “and undertake to teach
them to be wise, to be happy, and to be just; and, in return for so important a service,
they stipulate the paltry reward of four or five minae.” “They who teach wisdom,”
continues he, “ought certainly to be wise themselves; but if any man were to sell such a
bargain for such a price, he would be convicted of the most evident folly.” He certainly
does not mean here to exaggerate the reward, and we may be assured that it was not
less than he represents it. Four minae were equal to thirteen pounds six shillings and
eightpence; five minae to sixteen pounds thirteen shillings and fourpence. Something
not less than the largest of those two sums, therefore, must at that time have been
usually paid to the most eminent teachers at Athens. Isocrates himself demanded ten
minae, or £ 33:6:8 from each scholar. When he taught at Athens, he is said to have had
a hundred scholars. I understand this to be the number whom he taught at one time,
or who attended what we would call one course of lectures; a number which will not
appear extraordinary from so great a city to so famous a teacher, who taught, too, what
was at that time the most fashionable of all sciences, rhetoric. He must have made,
therefore, by each course of lectures, a thousand minae, or £, 3335:6:8. A thousand
minae, accordingly, is said by Plutarch, in another place, to have been his didactron,

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or usual price of teaching, Many other eminent teachers in those times appear to have
acquired great fortunes. Georgias made a present to the temple of Delphi of his own
statue in solid gold. We must not, I presume, suppose that it was as large as the life. His
way of living, as well as that of Hippias and Protagoras, two other eminent teachers of
those times, is represented by Plato as splendid, even to ostentation. Plato himself is
said to have lived with a good deal of magnificence. Aristotle, after having been tutor
to Alexander, and most munificently rewarded, as it is universally agreed, both by him
and his father, Philip, thought it worth while, notwithstanding, to return to Athens, in
order to resume the teaching of his school. Teachers of the sciences were probably in
those times less common than they came to be in an age or two afterwards, when the
competition had probably somewhat reduced both the price of their labour and the
admiration for their persons. The most eminent of them, however, appear always to
have enjoyed a degree of consideration much superior to any of the like profession
in the present times. The Athenians sent Carneades the academic, and Diogenes the
stoic, upon a solemn embassy to Rome; and though their city had then declined from
its former grandeur, it was still an independent and considerable republic.

Carneades, too, was a Babylonian by birth; and as there never was a people more
jealous of admitting foreigners to public offices than the Athenians, their consideration
for him must have been very great.

This inequality is, upon the whole, perhaps rather advantageous than hurtful
to the public. It may somewhat degrade the profession of a public teacher; but the
cheapness of literary education is surely an advantage which greatly overbalances this
trifling inconveniency. The public, too, might derive still greater benefit from it, if the
constitution of those schools and colleges, in which education is carried on, was more
reasonable than it is at present through the greater part of Europe.

Thirdly, the policy of Europe, by obstructing the free circulation of labour and
stock, both from employment to employment, and from place to place, occasions,
in some cases, a very inconvenient inequality in the whole of the advantages and
disadvantages of their different employments.

The statute of apprenticeship obstructs the free circulation of labour from one
employment to another, even in the same place. The exclusive privileges of corporations
obstruct it from one place to another, even in the same employment.

It frequently happens, that while high wages are given to the workmen in one
manufacture, those in another are obliged to content themselves with bare subsistence.
The one is in an advancing state, and has therefore a continual demand for new hands; the
other is in a declining state, and the superabundance of hands is continually increasing.
Those two manufactures may sometimes be in the same town, and sometimes in the
same neighbourhood, without being able to lend the least assistance to one another.
The statute of apprenticeship may oppose it in the one case, and both that and an
exclusive corporation in the other. In many different manufactures, however, the
operations are so much alike, that the workmen could easily change trades with one
another, if those absurd laws did not hinder them. The arts of weaving plain linen and

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plain silk, for example, are almost entirely the same. That of weaving plain woollen is
somewhat different; but the difference is so insignificant, that either a linen or a silk
weaver might become a tolerable workman in a very few days. If any of those three
capital manufactures, therefore, were decaying, the workmen might find a resource in
one of the other two which was in a more prosperous condition; and their wages would
neither rise too high in the thriving, nor sink too low in the decaying manufacture. The
linen manufacture, indeed, is in England, by a particular statute, open to every body;
but as it is not much cultivated through the greater part of the country, it can afford no
general resource to the work men of other decaying manufactures, who, wherever the
statute of apprenticeship takes place, have no other choice, but dither to come upon
the parish, or to work as common labourers; for which, by their habits, they are much
worse qualified than for any sort of manufacture that bears any resemblance to their
own. They generally, therefore, chuse to come upon the parish.

Whatever obstructs the free circulation of labour from one employment to
another, obstructs that of stock likewise; the quantity of stock which can be employed
in any branch of business depending very much upon that of the labour which can be
employed in it. Corporation laws, however, give less obstruction to the free circulation
of stock from one place to another, than to that of labour. It is everywhere much easier
for a wealthy merchant to obtain the privilege of trading in a town-corporate, than for
a poor artificer to obtain that of working in it.

The obstruction which corporation laws give to the free circulation of labour is
common, I believe, to every part of Europe. That which 1s given to it by the poor laws
is, so far as I know, peculiar to England. It consists in the difficulty which a poor man
finds in obtaining a settlement, or even in being allowed to exercise his industry in any
parish but that to which he belongs. It is the labour of artificers and manufacturers
only of which the free circulation is obstructed by corporation laws. The difficulty of
obtaining settlements obstructs even that of common labour. It may be worth while to
give some account of the rise, progress, and present state of this disorder, the greatest,
perhaps, of any in the police of England.

When, by the destruction of monasteries, the poor had been deprived of the charity
of those religious houses, after some other ineffectual attempts for their relief, it was
enacted, by the 43d of Elizabeth, c. 2. that every parish should be bound to provide for
its own poor, and that overseers of the poor should be annually appointed, who, with
the church-wardens, should raise, by a parish rate, competent sums for this purpose.

By this statute, the necessity of providing for their own poor was indispensably
imposed upon every parish. Who were to be considered as the poor of each parish
became, therefore, a question of some importance. This question, after some variation,
was at last determined by the 13th and 14th of Charles II. when it was enacted, that
forty days undisturbed residence should gain any person a settlement in any parish; but
that within that time it should be lawful for two justices of the peace, upon complaint
made by the church-wardens or overseers of the poor, to remove any new inhabitant
to the patish where he was last legally settled; unless he either rented a tenement of ten

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pounds a-year, or could give such security for the discharge of the parish where he was
then living, as those justices should judge sufficient.

Some frauds, it is said, were committed in consequence of this statute; parish
officers sometime’s bribing their own poor to go clandestinely to another parish, and,
by keeping themselves concealed for forty days, to gain a settlement there, to the
discharge of that to which they properly belonged. It was enacted, therefore, by the 1st
of James IL. that the forty days undisturbed residence of any person necessary to gain a
settlement, should be accounted only from the time of his delivering notice, in writing,
of the place of his abode and the number of his family, to one of the church-wardens
or overseers of the parish where he came to dwell.

But parish officers, it seems, were not always more honest with regard to their
own than they had been with regard to other parishes, and sometimes connived at
such intrusions, receiving the notice, and taking no proper steps in consequence of it.
As every person in a parish, therefore, was supposed to have an interest to prevent as
much as possible their being burdened by such intruders, it was further enacted by the
3rd of William III. that the forty days residence should be accounted only from the
publication of such notice in writing on Sunday in the church, immediately after divine
service.

“After all,” says Doctor Burn, “this kind of settlement, by continuing forty days
after publication of notice in writing, is very seldom obtained; and the design of the
acts is not so much for gaining of settlements, as for the avoiding of them by persons
coming into a parish clandestinely, for the gtving of notice is only putting a force upon
the parish to remove. But if a person’s situation is such, that it is doubtful whether
he is actually removable or not, he shall, by giving of notice, compel the parish either
to allow him a settlement uncontested, by suffering him to continue forty days, or by
removing him to try the right.”

This statute, therefore, rendered it almost impracticable for a poor man to gain a
new settlement in the old way, by forty days inhabitancy. But that it might not appear
to preclude altogether the common people of one’ parish from ever establishing
themselves with security in another, it appointed four other ways by which a settlement
might be gained without any notice delivered or published. The first was, by being
taxed to parish rates and paying them; the second, by being elected into an annual
parish office, and serving in it a year; the third, by serving an apprenticeship in the
parish; the fourth, by being hired into service there for a year, and continuing in the
same service during the whole of it. Nobody can gain a settlement by either of the two
first ways, but by the public deed of the whole parish, who are too well aware of the
consequences to adopt any new-comer, who has nothing but his labour to support him,
either by taxing him to parish rates, or by electing him into a parish office.

No married man can well gain any settlement in either of the two last ways. An
apprentice is scarce ever married; and it is expressly enacted, that no married servant
shall gain any settlement by being hired for a year. The principal effect of introducing
settlement by service, has been to put out in a great measure the old fashion of hiring

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for a year; which before had been so customary in England, that even at this day, if no
particular term is agreed upon, the law intends that every servant is hired for a yeat.
But masters are not always willing to give their servants a settlement by hiring them in
this manner; and servants are not always willing to be so hired, because, as every last
settlement discharges all the foregoing, they might thereby lose their original settlement
in the places of their nativity, the habitation of their parents and relations.

No independent workman, it is evident, whether labourer or artificer, is likely to
gain any new settlement, either by apprenticeship or by service. When such a person,
therefore, carried his industry to a new parish, he was liable to be removed, how healthy
and industrious soever, at the caprice of any churchwarden or overseer, unless he either
rented a tenement of ten pounds a-year, a thing impossible for one who has nothing
but his labour to live by, or could give such security for the discharge of the parish as
two justices of the peace should judge sufficient.

What security they shall require, indeed, is left altogether to their discretion; but
they cannot well require less than thirty pounds, it having been enacted, that the
purchase even of a freehold estate of less than thirty pounds value, shall not gain any
person a settlement, as not being sufficient for the discharge of the parish. But this is a
security which scarce any man who lives by labour can give; and much greater security
is frequently demanded.

In order to restore, in some measure, that free circulation of labour which those
different statutes had almost entirely taken away, the invention of certificates was fallen
upon. By the 8th and 9th of William III. it was enacted that if any person should bring
a certificate from the parish where he was last legally settled, subscribed by the church-
wardens and overseers of the poor, and allowed by two justices of the peace, that every
other parish should be obliged to receive him; that he should not be removable merely
upon account of his being likely to become chargeable, but only upon his becoming
actually chargeable; and that then the parish which granted the certificate should be
obliged to pay the expense both of his maintenance and of his removal. And in order
to give the most perfect security to the parish where such certificated man should come
to reside, it was further enacted by the same statute, that he should gain no settlement
there by any means whatever, except either by renting a tenement of ten pounds a-year,
ot by serving upon his own account in an annual parish office for one whole year; and
consequently neither by notice nor by service, nor by apprenticeship, nor by paying
parish rates. By the 12th of Queen Anne, too, stat. 1, c.18, it was further enacted,
that neither the servants nor apprentices of such certificated man should gain any
settlement in the parish where he resided under such certificate.

How far this invention has restored that free circulation of labour, which the
preceding statutes had almost entirely taken away, we may learn from the following
very judicious observation of Doctor Burn. “It is obvious,” says he, “that there are
divers good reasons for requiring certificates with persons coming to settle in any
place; namely, that persons residing under them can gain no settlement, neither by
apprenticeship, nor by service, nor by giving notice, nor by paying parish rates; that

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they can settle neither apprentices nor servants; that if they become chargeable, it is
certainly known whither to remove them, and the parish shall be paid for the removal,
and for their maintenance in the mean time; and that, if they fall sick, and cannot be
removed, the parish which gave the certificate must maintain them; none of all which
can be without a certificate. Which reasons will hold proportionably for parishes not
eranting certificates in ordinary cases; for it is far more than an equal chance, but that
they will have the certificated persons again, and in a worse condition.” The moral of
this observation seems to be, that certificates ought always to be required by the parish
where any poor man comes to reside, and that they ought very seldom to be granted
by that which he purposes to leave. “There is somewhat of hardship in this matter of
certificates,” says the same very intelligent author, in his History of the Poor Laws,
“by putting it in the power of a parish officer to imprison a man as it were for life,
however inconvenient it may be for him to continue at that place where he has had
the misfortune to acquire what is called a settlement, or whatever advantage he may
propose himself by living elsewhere.”

Though a certificate carries along with it no testimonial of good behaviour, and
certifies nothing but that the person belongs to the parish to which he really does
belong, it is altogether discretionary in the parish officers either to grant or to refuse it.
A mandamus was once moved for, says Doctor Burn, to compel the church-wardens
and overseers to sign a certificate; but the Court of King’s Bench rejected the motion
as a very strange attempt.

The very unequal price of labour which we frequently find in England, in places
at no great distance from one another, is probably owing to the obstruction which the
law of settlements gives to a poor man who would carry his industry from one parish
to another without a certificate. A single man, indeed who is healthy and industrious,
may sometimes reside by sufferance without one; but a man with a wife and family
who should attempt to do so, would, in most parishes, be sure of being removed; and,
if the single man should afterwards marry, he would generally be removed likewise.
The scarcity of hands in one parish, therefore, cannot always be relieved by their
superabundance in another, as it is constantly in Scotland, and I believe, in all other
countries where there is no difficulty of settlement. In such countries, though wages
may sometimes rise a little in the neighbourhood of a great town, or wherever else
there is an extraordinary demand for labour, and sink gradually as the distance from
such places increases, till they fall back to the common rate of the country; yet we never
meet with those sudden and unaccountable differences in the wages of neighbouring
places which we sometimes find in England, where it is often more difficult for a poor
man to pass the artificial boundary of a parish, than an arm of the sea, or a ridge of
high mountains, natural boundaries which sometimes separate very distinctly different
rates of wages in other countries.

To remove a man who has committed no misdemeanour, from the parish where
he chooses to reside, is an evident violation of natural liberty and justice. The common
people of England, however, so jealous of their liberty, but like the common people

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of most other countries, never rightly understanding wherein it consists, have now, for
more than a century together, suffered themselves to be exposed to this oppression
without a remedy. Though men of teflection, too, have some times complained of
the law of settlements as a public grievance; yet it has never been the object of any
general popular clamour, such as that against general warrants, an abusive practice
undoubtedly, but such a one as was not likely to occasion any general oppression. There
is scarce a poor man in England, of forty years of age, I will venture to say, who has
not, in some part of his life, felt himself most cruelly oppressed by this ill-contrived
law of settlements.

I shall conclude this long chapter with observing, that though anciently it was usual
to rate wages, first by general laws extending over the whole kingdom, and afterwards
by particular orders of the justices of peace in every particular county, both these
practices have now gone entirely into disuse. “By the experience of above four hundred
years,” says Doctor Burn, “it seems time to lay aside all endeavours to bring under
strict regulations, what in its own nature seems incapable of minute limitation; for if
all persons in the same kind of work were to receive equal wages, there would be no
emulation, and no room left for industry or ingenuity.”

Particular acts of parliament, however, still attempt sometimes to regulate wages
in particular trades, and in particular places. Thus the 8th of George III. prohibits,
under heavy penalties, all master tailors in London, and five miles round it, from giving,
and their workmen from accepting, more than two shillings and sevenpence halfpenny
a-day, except in the case of a general mourning. Whenever the legislature attempts to
regulate the differences between masters and their workmen, its counsellors are always
the masters. When the regulation, therefore, is in favour of the workmen, it is always
just and equitable; but it is sometimes otherwise when in favour of the masters. Thus
the law which obliges the masters in several different trades to pay their workmen in
money, and not in goods, is quite just and equitable. It imposes no real hardship upon
the masters. It only obliges them to pay that value in money, which they pretended to
pay, but did not always really pay, in goods. This law is in favour of the workmen; but
the 8th of George IIL. is in favour of the masters. When masters combine together, in
order to reduce the wages of their workmen, they commonly enter into a private bond
or agreement, not to give more than a certain wage, under a certain penalty. Were the
workmen to enter into a contrary combination of the same kind, not to accept of a
certain wage, under a certain penalty, the law would punish them very severely; and, if it
dealt impartially, it would treat the masters in the same manner. But the 8th of George
LI. enforces by law that very regulation which masters sometimes attempt to establish
by such combinations. The complaint of the workmen, that it puts the ablest and most
industrious upon the same footing with an ordinary workman, seems perfectly well
founded.

In ancient times, too, it was usual to attempt to regulate the profits of merchants
and other dealers, by regulating the price of provisions and ether goods. The assize
of bread is, so far as I know, the only remnant of this ancient usage. Where there is

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an exclusive corporation, it may, perhaps, be proper to regulate the price of the first
necessary of life; but, where there is none, the competition will regulate it much better
than any assize. The method of fixing the assize of bread, established by the 31st of
George LH. could not be put in practice in Scotland, on account of a defect in the law,
its execution depending upon the office of clerk of the market, which does not exist
there. This defect was not remedied till the third of George HI. The want of an assize
occasioned no sensible inconveniency; and the establishment of one in the few places
where it has yet taken place has produced no sensible advantage. In the greater part
of the towns in Scotland, however, there is an incorporation of bakers, who claim
exclusive privileges, though they are not very strictly guarded. The proportion between
the different rates, both of wages and profit, in the different employments of labour
and stock, seems not to be much affected, as has already been observed, by the riches
or poverty, the advancing, stationary, or declining state of the society. Such revolutions
in the public welfare, though they affect the general rates both of wages and profit,
must, in the end, affect them equally in all different employments. The proportion
between them, therefore, must remain the same, and cannot well be altered, at least for
any considerable time, by any such revolutions.

ADAM SMITH

CHAPTER XI.
OF THE RENT OF LAND.

Ro considered as the price paid for the use of land, is naturally the highest which
the tenant can afford to pay in the actual circumstances of the land. In adjusting
the terms of the lease, the landlord endeavours to leave him no greater share of the
produce than what is sufficient to keep up the stock from which he furnishes the
seed, pays the labour, and purchases and maintains the cattle and other instruments of
husbandry, together with the ordinary profits of farming stock in the neighbourhood.
This is evidently the smallest share with which the tenant can content himself, without
being a loser, and the landlord seldom means to leave him any more. Whatever part of
the produce, or, what is the same thing, whatever part of its price, is over and above
this share, he naturally endeavours to reserve to himself as the rent of his land, which
is evidently the highest the tenant can afford to pay in the actual circumstances of the
land. Sometimes, indeed, the liberality, more frequently the ignorance, of the landlord,
makes him accept of somewhat less than this portion; and sometimes, too, though
more rarely, the ignorance of the tenant makes him undertake to pay somewhat mote,
or to content himself with somewhat less, than the ordinary profits of farming stock
in the neighbourhood. This portion, however, may still be considered as the natural
rent of land, or the rent at which it 1s naturally meant that land should, for the most
part, be let.

The rent of land, it may be thought, is frequently no more than a reasonable profit
of interest for the stock laid out by the landlord upon its improvement. This, no doubt,
may be partly the case upon some occasions; for it can scarce ever be more than partly
the case. The landlord demands a rent even for unimproved land, and the supposed
interest or profit upon the expense of improvement is generally an addition to this
original rent. Those improvements, besides, are not always made by the stock of the
landlord, but sometimes by that of the tenant. When the lease comes to be renewed,
however, the landlord commonly demands the same augmentation of rent as if they
had been all made by his own.

He sometimes demands rent for what is altogether incapable of human
improvements. Kelp is a species of sea-weed, which, when burnt, yields an alkaline
salt, useful for making glass, soap, and for several other purposes. It grows in several
parts of Great Britain, particularly in Scotland, upon such rocks only as lie within the
high-water mark, which are twice every day covered with the sea, and of which the
produce, therefore, was never augmented by human industry. The landlord, however,

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whose estate is bounded by a kelp shore of this kind, demands a rent for it as much as
for his corn-fields.

The sea in the neighbourhood of the islands of Shetland is more than commonly
abundant in fish, which makes a great part of the subsistence of their inhabitants. But,
in order to profit by the produce of the water, they must have a habitation upon the
neighbouring land. The rent of the landlord is in proportion, not to what the farmer
can make by the land, but to what he can make both by the land and the water. It is
partly paid in sea-fish; and one of the very few instances in which rent makes a part of
the price of that commodity, is to be found in that country.

The rent of land, therefore, considered as the price paid for the use of the land, is
naturally a monopoly price. It is not at all proportioned to what the landlord may have
laid out upon the improvement of the land, or to what he can afford to take, but to
what the farmer can afford to give.

Such parts only of the produce of land can commonly be brought to market, of
which the ordinary price is sufficient to replace the stock which must be employed in
bringing them thither, together with its ordinary profits. If the ordinary price is more
than this, the surplus part of it will naturally go to the rent of the land. If it is not more,
though the commodity may be brought to market, it can afford no rent to the landlord.
Whether the price is, or is not more, depends upon the demand.

There are some parts of the produce of land, for which the demand must always
be such as to afford a greater price than what is sufficient to bring them to market; and
there are others for which it either may or may not be such as to afford this greater
price. The former must always afford a rent to the landlord. The latter sometimes may
and sometimes may not, according to different circumstances.

Rent, it is to be observed, therefore, enters into the composition of the price of
commodities in a different way from wages and profit. High or low wages and profit are
the causes of high or low price; high or low rent is the effect of it. It is because high or
low wages and profit must be paid, in order to bring a particular commodity to market,
that its price is high or low. But it is because its price is high or low, a great deal more,
or very little more, or no more, than what is sufficient to pay those wages and profit,
that it affords a high rent, or a low rent, or no rent at all.

The particular consideration, first, of those parts of the produce of land which
always afford some rent, secondly, of those which sometimes may and sometimes
may not afford rent; and, thirdly, of the variations which, in the different periods of
improvement, naturally take place in the relative value of those two different sorts
of rude produce, when compared both with one another and with manufactured
commodities, will divide this chapter into three parts.

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PART I.
Of the Produce of Land which always affords Rent.

As men, like all other animals, naturally multiply in proportion to the means of
their subsistence, food is always more or less in demand. It can always purchase or
command a greater or smaller quantity of labour, and somebody can always be found
who is willing to do something in order to obtain it. The quantity of labour, indeed,
which it can purchase, is not always equal to what it could maintain, if managed in the
most economical mannet, on account of the high wages which are sometimes given to
labour; but it can always purchase such a quantity of labour as it can maintain, according
to the rate at which that sort of labour is commonly maintained in the neighbourhood.

But land, in almost any situation, produces a greater quantity of food than what
is sufficient to maintain all the labour necessary for bringing it to market, in the most
liberal way in which that labour is ever maintained. The surplus, too, is always more than
sufficient to replace the stock which employed that labour, together with its profits.
Something, therefore, always remains for a rent to the landlord.

The most desert moors in Norway and Scotland produce some sort of pasture
for cattle, of which the milk and the increase are always more than sufficient, not only
to maintain all the labour necessary for tending them, and to pay the ordinary profit
to the farmer or the owner of the herd or flock, but to afford some small rent to the
landlord. The rent increases in proportion to the goodness of the pasture. The same
extent of ground not only maintains a greater number of cattle, but as they we brought
within a smaller compass, less labour becomes requisite to tend them, and to collect
their produce. The landlord gains both ways; by the increase of the produce, and by the
diminution of the labour which must be maintained out of it.

The rent of land not only varies with its fertility, whatever be its produce, but
with its situation, whatever be its fertility. Land in the neighbourhood of a town gives
a greater rent than land equally fertile in a distant part of the country. Though it may
cost no more labour to cultivate the one than the other, it must always cost more to
bring the produce of the distant land to market. A greater quantity of labour, therefore,
must be maintained out of it; and the surplus, from which are drawn both the profit
of the farmer and the rent of the landlord, must be diminished. But in remote parts
of the country, the rate of profit, as has already been shewn, is generally higher than in
the neighbourhood of a large town. A smaller proportion of this diminished surplus,
therefore, must belong to the landlord.

Good roads, canals, and navigable rivers, by diminishing the expense of
catriage, put the remote parts of the country more nearly upon a level with those
in the neighbourhood of the town. They are upon that account the greatest of all
improvements. They encourage the cultivation of the remote, which must always be the

THE WEALTH OF NATIONS

most extensive circle of the country. They are advantageous to the town by breaking
down the monopoly of the country in its neighbourhood. They are advantageous
even to that part of the country. Though they introduce some rival commodities into
the old market, they open many new markets to its produce. Monopoly, besides, is a
great enemy to good management, which can never be universally established, but in
consequence of that free and universal competition which forces every body to have
recourse to it for the sake of self defence. It is not more than fifty years ago, that some
of the counties in the neighbourhood of London petitioned the parliament against the
extension of the turnpike roads into the remoter counties. Those remoter counties,
they pretended, from the cheapness of labour, would be able to sell their grass and
corn cheaper in the London market than themselves, and would thereby reduce their
rents, and ruin their cultivation. Their rents, however, have risen, and their cultivation
has been improved since that time.

A corn field of moderate fertility produces a much greater quantity of food for
man, than the best pasture of equal extent. Though its cultivation requires much
more labour, yet the surplus which remains after replacing the seed and maintaining
all that labour, is likewise much greater. If a pound of butcher’s meat, therefore, was
never supposed to be worth more than a pound of bread, this greater surplus would
everywhere be of greater value and constitute a greater fund, both for the profit of the
farmer and the rent of the landlord. It seems to have done so universally in the rude
beginnings of agriculture.

But the relative values of those two different species of food, bread and butchet’s
meat, are very different in the different periods of agriculture. In its rude beginnings,
the unimproved wilds, which then occupy the far greater part of the country, are all
abandoned to cattle. There is more butchet’s meat than bread; and bread, therefore, is
the food for which there is the greatest competition, and which consequently brings the
greatest price. At Buenos Ayres, we are told by Ulloa, four reals, one-and-twenty pence
halfpenny sterling, was, forty or fifty years ago, the ordinary price of an ox, chosen
from a herd of two or three hundred. He says nothing of the price of bread, probably
because he found nothing remarkable about it. An ox there, he says, costs little more
than the labour of catching him. But corn can nowhere be raised without a great deal
of labour; and in a country which lies upon the river Plate, at that time the direct road
from Europe to the silver mines of Potosi, the money-price of labour could be very
cheap. It is otherwise when cultivation is extended over the greater part of the country.
There is then more bread than butcher’s meat. The competition changes its direction,
and the price of butcher’s meat becomes greater than the price of bread.

By the extension, besides, of cultivation, the unimproved wilds become insufficient
to supply the demand for butcher’s meat. A great part of the cultivated lands must
be employed in rearing and fattening cattle; of which the price, therefore, must be
sufficient to pay, not only the labour necessary for tending them, but the rent which the
landlord, and the profit which the farmer, could have drawn from such land employed
in tillage. The cattle bred upon the most uncultivated moors, when brought to the

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same market, are, in proportion to their weight or goodness, sold at the same price as
those which are reared upon the most improved land. The proprietors of those moors
profit by it, and raise the rent of their land in proportion to the price of their cattle.
It is not more than a century ago, that in many parts of the Highlands of Scotland,
butchet’s meat was as cheap or cheaper than even bread made of oatmeal. The Union
opened the market of England to the Highland cattle. Their ordinary price, at present,
is about three times greater than at the beginning of the century, and the rents of
many Highland estates have been tripled and quadrupled in the same time. In almost
every part of Great Britain, a pound of the best butchet’s meat is, in the present times,
generally worth more than two pounds of the best white bread; and in plentiful years it
is sometimes worth three or four pounds.

It is thus that, in the progress of improvement, the rent and profit of unimproved
pasture come to be regulated in some measure by the rent and profit of what is
improved, and these again by the rent and profit of corn. Corn is an annual crop;
butcher’s meat, a crop which requires four or five years to grow. As an acre of land,
therefore, will produce a much smaller quantity of the one species of food than of the
other, the inferiority of the quantity must be compensated by the superiority of the
price. If it was more than compensated, more corn-land would be turned into pasture;
and if it was not compensated, part of what was in pasture would be brought back into
corn.

This equality, however, between the rent and profit of grass and those of corn; of
the land of which the immediate produce is food for cattle, and of that of which the
immediate produce is food for men, must be understood to take place only through
the greater part of the improved lands of a great country. In some particular local
situations it is quite otherwise, and the rent and profit of grass are much superior to
what can be made by corn.

Thus, in the neighbourhood of a great town, the demand for milk, and for forage
to horses, frequently contribute, together with the high price of butcher’s meat, to raise
the value of grass above what may be called its natural proportion to that of corn. This
local advantage, it is evident, cannot be communicated to the lands at a distance.

Particular circumstances have sometimes rendered some countries so populous,
that the whole territory, like the lands in the neighbourhood of a great town, has not
been sufficient to produce both the grass and the corn necessary for the subsistence
of their inhabitants. Their lands, therefore, have been principally employed in the
production of grass, the more bulky commodity, and which cannot be so easily brought
from a gteat distance; and corn, the food of the great body of the people, has been
chiefly imported from foreign countries. Holland is at present in this situation; and
a considerable part of ancient Italy seems to have been so during the prosperity of
the Romans. To feed well, old Cato said, as we are told by Cicero, was the first and
most profitable thing in the management of a private estate; to feed tolerably well,
the second; and to feed ill, the third. To plough, he ranked only in the fourth place
of profit and advantage. Tillage, indeed, in that part of ancient Italy which lay in the

THE WEALTH OF NATIONS

neighbour hood of Rome, must have been very much discouraged by the distributions
of corn which were frequently made to the people, either gratuitously, or at a very low
price. This corn was brought from the conquered provinces, of which several, instead
of taxes, were obliged to furnish a tenth part of their produce at a stated price, about
sixpence a-peck, to the republic. The low price at which this corn was distributed to the
people, must necessarily have sunk the price of what could be brought to the Roman
market from Latium, or the ancient territory of Rome, and must have discouraged its
cultivation in that country.

In an open country, too, of which the principal produce is corn, a well-inclosed
piece of grass will frequently rent higher than any corn field in its neighbourhood. It is
convenient for the maintenance of the cattle employed in the cultivation of the corn;
and its high rent is, in this case, not so properly paid from the value of its own produce,
as from that of the corn lands which are cultivated by means of it. It is likely to fall, 1f
ever the neighbouring lands are completely inclosed. The present high rent of inclosed
land in Scotland seems owing to the scarcity of inclosure, and will probably last no
longer than that scarcity. The advantage of inclosure is greater for pasture than for
corn. It saves the labour of guarding the cattle, which feed better, too, when they are
not liable to be disturbed by their keeper or his dog.

But where there is no local advantage of this kind, the rent and profit of corn,
ot whatever else is the common vegetable food of the people, must naturally regulate
upon the land which is fit for producing it, the rent and profit of pasture.

The use of the artificial grasses, of turnips, carrots, cabbages, and the other
expedients which have been fallen upon to make an equal quantity of land feed a
greater number of cattle than when in natural grass, should somewhat reduce, it might
be expected, the superiority which, in an improved country, the price of butcher’s meat
naturally has over that of bread. It seems accordingly to have done so; and there is
some reason for believing that, at least in the London market, the price of butcher’s
meat, in proportion to the price of bread, is a good deal lower in the present times than
it was in the beginning of the last century.

In the Appendix to the life of Prince Henry, Doctor Birch has given us an account
of the prices of butcher’s meat as commonly paid by that prince. It is there said, that
the four quarters of an ox, weighing six hundred pounds, usually cost him nine pounds
ten shillings, or thereabouts; that is thirty-one shillings and eight-pence per hundred
pounds weight. Prince Henry died on the 6th of November 1612, in the nineteenth
year of his age.

In March 1764, there was a parliamentary inquiry into the causes of the high price
of provisions at that time. It was then, among other proof to the same purpose, given
in evidence by a Virginia merchant, that in March 1763, he had victualled his ships for
twentyfour or twenty-five shillings the hundred weight of beef, which he considered
as the ordinary price; whereas, in that dear year, he had paid twenty-seven shillings for
the same weight and sort. This high price in 1764 is, however, four shillings and eight-
pence cheaper than the ordinary price paid by Prince Henry; and it is the best beef only,

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it must be observed, which is fit to be salted for those distant voyages.

The price paid by Prince Henry amounts to 3d. 4/5ths per pound weight of the
whole carcase, coarse and choice pieces taken together; and at that rate the choice
pieces could not have been sold by retail for less than 4Y%d. or 5d. the pound.

In the parliamentary inquiry in 1764, the witnesses stated the price of the choice
pieces of the best beef to be to the consumer 4d. and 4%d. the pound; and the coarse
pieces in general to be from seven farthings to 2d. and 27/d.; and this, they said, was
in general one halfpenny dearer than the same sort of pieces had usually been sold in
the month of March. But even this high price is still a good deal cheaper than what we
can well suppose the ordinary retail price to have been in the time of Prince Henry.

During the first twelve years of the last century, the average price of the best wheat
at the Windsor market was £ 1:18:3¥/2d. the quarter of nine Winchester bushels.

But in the twelve years preceding 1764 including that year, the average price of the
same measure of the best wheat at the same market was £ 2:1:91/d.

In the first twelve years of the last century, therefore, wheat appears to have been
a good deal cheaper, and butcher’s meat a good deal dearer, than in the twelve years
preceding 17064, including that year.

In all great countries, the greater part of the cultivated lands are employed in
producing either food for men or food for cattle. The rent and profit of these regulate
the rent and profit of all other cultivated land. If any particular produce afforded less,
the land would soon be turned into corn or pasture; and if any afforded more, some
part of the lands in corn or pasture would soon be turned to that produce.

Those productions, indeed, which require either a greater original expense of
improvement, or a greater annual expense of cultivation in order to fit the land for
them, appear commonly to afford, the one a greater rent, the other a greater profit,
than corn or pasture. This superiority, however, will seldom be found to amount to
more than a reasonable interest or compensation for this superior expense.

In a hop garden, a fruit garden, a kitchen garden, both the rent of the landlord, and
the profit of the farmer, are generally greater than in acorn or grass field. But to bring the
ground into this condition requires more expense. Hence a greater rent becomes due to
the landlord. It requires, too, a more attentive and skilful management. Hence a greater
profit becomes due to the farmer. The crop, too, at least in the hop and fruit garden,
is more precarious. Its price, therefore, besides compensating all occasional losses,
must afford something like the profit of insurance. The circumstances of gardeners,
generally mean, and always moderate, may satisfy us that their great ingenuity is not
commonly over-recompensed. Their delightful art is practised by so many rich people
for amusement, that little advantage is to be made by those who practise it for profit;
because the persons who should naturally be their best customers, supply themselves
with all their most precious productions.

The advantage which the landlord derives from such improvements, seems at no
time to have been greater than what was sufficient to compensate the original expense
of making them. In the ancient husbandry, after the vineyard, a well-watered kitchen

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garden seems to have been the part of the farm which was supposed to yield the
most valuable produce. But Democritus, who wrote upon husbandry about two
thousand years ago, and who was regarded by the ancients as one of the fathers of
the art, thought they did not act wisely who inclosed a kitchen garden. The profit,
he said, would not compensate the expense of a stone-wall: and bricks (he meant, I
suppose, bricks baked in the sun) mouldered with the rain and the winter-storm, and
required continual repairs. Columella, who reports this judgment of Democritus, does
not controvert it, but proposes a very frugal method of inclosing with a hedge of
brambles and briars, which he says he had found by experience to be both a lasting
and an impenetrable fence; but which, it seems, was not commonly known in the time
of Democritus. Palladius adopts the opinion of Columella, which had before been
recommended by Varro. In the judgment of those ancient improvers, the produce of
a kitchen garden had, it seems, been little more than sufficient to pay the extraordinary
culture and the expense of watering; for in countries so near the sun, it was thought
proper, in those times as in the present, to have the command of a stream of water,
which could be conducted to every bed in the garden. Through the greater part of
Europe, a kitchen garden is not at present supposed to deserve a better inclosure than
mat recommended by Columella. In Great Britain, and some other northern countries,
the finer fruits cannot be brought to perfection but by the assistance of a wall. Their
price, therefore, in such countries, must be sufficient to pay the expense of building and
maintaining what they cannot be had without. The fruit-wall frequently surrounds the
kitchen garden, which thus enjoys the benefit of an inclosure which its own produce
could seldom pay for.

That the vineyard, when properly planted and brought to perfection, was the most
valuable part of the farm, seems to have been an undoubted maxim in the ancient
agriculture, as it is in the modern, through all the wine countries. But whether it was
advantageous to plant a new vineyard, was a matter of dispute among the ancient
Italian husbandmen, as we learn from Columella. He decides, like a true lover of all
curious cultivation, in favour of the vineyard; and endeavours to shew, by a comparison
of the profit and expense, that it was a most advantageous improvement. Such
comparisons, however, between the profit and expense of new projects are commonly
very fallacious; and in nothing more so than in agriculture. Had the gain actually made
by such plantations been commonly as great as he imagined it might have been, there
could have been no dispute about it. The same point is frequently at this day a matter
of controversy in the wine countries. Their writers on agriculture, indeed, the lovers
and promoters of high cultivation, seem generally disposed to decide with Columella in
favour of the vineyard. In France, the anxiety of the proprietors of the old vineyards
to prevent the planting of any new ones, seems to favour their opinion, and to indicate
a consciousness in those who must have the experience, that this species of cultivation
is at present in that country more profitable than any other. It seems, at the same
time, however, to indicate another opinion, that this superior profit can last no longer
than the laws which at present restrain the free cultivation of the vine. In 1731,they

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obtained an order of council, prohibiting both the planting of new vineyards, and the
renewal of these old ones, of which the cultivation had been interrupted for two years,
without a particular permission from the king, to be granted only in consequence of
an information from the intendant of the province, certifying that he had examined
the land, and that it was incapable of any other culture. The pretence of this order
was the scarcity of corn and pasture, and the superabundance of wine. But had this
superabundance been real, it would, without any order of council, have effectually
prevented the plantation of new vineyards, by reducing the profits of this species of
cultivation below their natural proportion to those of corn and pasture. With regard
to the supposed scarcity of corn occasioned by the multiplication of vineyards, corn
is nowhere in France more carefully cultivated than in the wine provinces, where the
land is fit for producing it: as in Burgundy, Guienne, and the Upper Languedoc. The
numerous hands employed in the one species of cultivation necessarily encourage the
other, by affording a ready market for its produce. To diminish the number of those
who are capable of paying it, is surely a most unpromising expedient for encouraging
the cultivation of corn. It is like the policy which would promote agriculture, by
discouraging manufactures.

The rent and profit of those productions, therefore, which require either a greater
original expense of improvement in order to fit the land for them, or a greater annual
expense of cultivation, though often much superior to those of corn and pasture, yet
when they do no more than compensate such extraordinary expense, are in reality
regulated by the rent and profit of those common crops.

It sometimes happens, indeed, that the quantity of land which can be fitted for some
particular produce, is too small to supply the effectual demand. The whole produce can
be disposed of to those who are willing to give somewhat more than what is sufficient
to pay the whole rent, wages, and profit, necessary for raising and bringing it to market,
according to their natural rates, or according to the rates at which they are paid in the
greater part of other cultivated land. The surplus part of the price which remains after
defraying the whole expense of improvement and cultivation, may commonly, in this
case, and in this case only, bear no regular proportion to the like surplus in corn or
pasture, but may exceed it in almost any degree; and the greater part of this excess
naturally goes to the rent of the landlord.

The usual and natural proportion, for example, between the rent and profit of
wine, and those of corn and pasture, must be understood to take place only with regard
to those vineyards which produce nothing but good common wine, such as can be
raised almost anywhere, upon any light, gravelly, or sandy soil, and which has nothing
to recommend it but its strength and wholesomeness. It is with such vineyards only,
that the common land of the country can be brought into competition; for with those
of a peculiar quality it is evident that it cannot.

The vine is more affected by the difference of soils than any other fruit-tree. From
some it derives a flavour which no culture or management can equal, it is supposed,
upon any other. This flavour, real or imaginary, is sometimes peculiar to the produce

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THE WEALTH OF NATIONS

of a few vineyards; sometimes it extends through the greater part of a small district,
and sometimes through a considerable part of a large province. The whole quantity of
such wines that is brought to market falls short of the effectual demand, or the demand
of those who would be willing to pay the whole rent, profit, and wages, necessaty for
preparing and bringing them thither, according to the ordinary rate, or according to
the rate at which they ate paid in common vineyards. The whole quantity, therefore,
can be disposed of to those who are willing to pay more, which necessarily raises their
price above that of common wine. The difference is greater or less, according as the
fashionableness and scarcity of the wine render the competition of the buyers more
ot less eager. Whatever it be, the greater part of it goes to the rent of the landlord. For
though such vineyards are in general more carefully cultivated than most others, the
high price of the wine seems to be, not so much the effect, as the cause of this careful
cultivation. In so valuable a produce, the loss occasioned by negligence is so great, as to
force even the most careless to attention. A small part of this high price, therefore, is
sufficient to pay the wages of the extraordinary labour bestowed upon their cultivation,
and the profits of the extraordinary stock which puts that labour into motion.

The sugar colonies possessed by the European nations in the West Indies may be
compared to those precious vineyards. Their whole produce falls short of the effectual
demand of Europe, and can be disposed of to those who are willing to give more than
what is sufficient to pay the whole rent, profit, and wages, necessary for preparing
and bringing it to market, according to the rate at which they are commonly paid by
any other produce. In Cochin China, the finest white sugar generally sells for three
piastres the quintal, about thirteen shillings and sixpence of our money, as we are told
by Mr Poivre {Voyages d’un Philosophe.}, a very careful observer of the agriculture of
that country. What is there called the quintal, weighs from a hundred and fifty to two
hundred Paris pounds, or a hundred and seventy-five Paris pounds at a medium, which
reduces the price of the hundred weight English to about eight shillings sterling; not
a fourth part of what is commonly paid for the brown or muscovada sugars imported
from our colonies, and not a sixth part of what is paid for the finest white sugar. The
greater part of the cultivated lands in Cochin China are employed in producing corn
and rice, the food of the great body of the people. The respective prices of corn,
tice, and sugar, are there probably in the natural proportion, or in that which naturally
takes place in the different crops of the greater part of cultivated land, and Shick
recompenses the landlord and farmer, as nearly as can be computed, according to what
is usually the original expense of improvement, and the annual expense of cultivation.
But in our sugar colonies, the price of sugar bears no such proportion to that of
the produce of a rice or corn field either in Europe or America. It is commonly said
that a sugar planter expects that the rum and the molasses should defray the whole
expense of his cultivation, and that his sugar should be all clear profit. If this be true,
for I pretend not to affirm it, it is as if a corn farmer expected to defray the expense
of his cultivation with the chaff and the straw, and that the grain should be all clear
profit. We see frequently societies of merchants in London, and other trading towns,

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purchase waste lands in our sugar colonies, which they expect to improve and cultivate
with profit, by means of factors and agents, notwithstanding the great distance and
the uncertain returns, from the defective administration of justice in those countries.
Nobody will attempt to improve and cultivate in the same manner the most fertile
lands of Scotland, Ireland, or the corn provinces of North America, though, from the
more exact administration of justice in these countries, more regular returns might be
expected.

In Virginia and Maryland, the cultivation of tobacco is preferred, as most profitable,
to that of corn. Tobacco might be cultivated with advantage through the greater part
of Europe; but, in almost every part of Europe, it has become a principal subject
of taxation; and to collect a tax from every different farm in the country where this
plant might happen to be cultivated, would be more difficult, it has been supposed,
than to levy one upon its importation at the custom-house. The cultivation of tobacco
has, upon this account, been most absurdly prohibited through the greater part of
Europe, which necessarily gives a sort of monopoly to the countries where it is allowed;
and as Virginia and Maryland produce the greatest quantity of it, they share largely,
though with some competitors, in the advantage of this monopoly. The cultivation
of tobacco, however, seems not to be so advantageous as that of sugar. I have never
even heard of any tobacco plantation that was improved and cultivated by the capital
of merchants who resided in Great Britain; and our tobacco colonies send us home no
such wealthy planters as we see frequently arrive from our sugar islands. Though, from
the preference given in those colonies to the cultivation of tobacco above that of corn,
it would appear that the effectual demand of Europe for tobacco is not completely
supplied, it probably is more nearly so than that for sugar; and though the present
ptice of tobacco is probably more than sufficient to pay the whole rent, wages, and
profit, necessary for preparing and bringing it to market, according to the rate at which
they are commonly paid in corn land, it must not be so much more as the present
price of sugar. Our tobacco planters, accordingly, have shewn the same fear of the
superabundance of tobacco, which the proprietors of the old vineyards in France have
of the superabundance of wine. By act of assembly, they have restrained its cultivation
to six thousand plants, supposed to yield a thousand weight of tobacco, for every negro
between sixteen and sixty years of age. Such a negro, over and above this quantity of
tobacco, can manage, they reckon, four acres of Indian corn. To prevent the market
from being overstocked, too, they have sometimes, in plentiful years, we are told by Dr
Douglas {Douglas’s Summary, vol. ii. p. 379, 373.} (I suspect he has been ill informed),
burnt a certain quantity of tobacco for every negro, in the same manner as the Dutch
are said to do of spices. If such violent methods are necessary to keep up the present
price of tobacco, the superior advantage of its culture over that of corn, if it still has
any, will not probably be of long continuance.

It is in this manner that the rent of the cultivated land, of which the produce
is human food, regulates the rent of the greater part of other cultivated land. No
particular produce can long afford less, because the land would immediately be turned

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to another use; and if any particular produce commonly affords more, it is because the
quantity of land which can be fitted for it is too small to supply the effectual demand.

In Europe, corn is the principal produce of land, which serves immediately for
human food. Except in particular situations, therefore, the rent of corn land regulates
in Europe that of all other cultivated land. Britain need envy neither the vineyards of
France, nor the olive plantations of Italy. Except in particular situations, the value of
these is regulated by that of corn, in which the fertility of Britain is not much inferior
to that of either of those two countries.

If, in any country, the common and favourite vegetable food of the people should
be drawn from a plant of which the most common land, with the same, or nearly the
same culture, produced a much greater quantity than the most fertile does of corn; the
rent of the landlord, or the surplus quantity of food which would remain to him, after
paying the labour, and replacing the stock of the farmer, together with its ordinary
profits, would necessarily be much greater. Whatever was the rate at which labour was
commonly maintained in that country, this greater surplus could always maintain a
greater quantity of it, and, consequently, enable the landlord to purchase or command
a greater quantity of it. The real value of his rent, his real power and authority, his
command of the necessaries and conveniencies of life with which the labour of other
people could supply him, would necessarily be much greater.

A tice field produces a much greater quantity of food than the most fertile corn
field. Two crops in the year, from thirty to sixty bushels each, are said to be the ordinary
produce of an acre. Though its cultivation, therefore, requires more labour, a much
greater surplus remains after maintaining all that labour. In those rice countries,
therefore, where rice is the common and favourite vegetable food of the people, and
where the cultivators are chiefly maintained with it, a greater share of this greater
surplus should belong to the landlord than in corn countries. In Carolina, where the
planters, as in other British colonies, are generally both farmers and landlords, and
where rent, consequently, is confounded with profit, the cultivation of rice is found to
be more profitable than that of corn, though their fields produce only one crop in the
year, and though, from the prevalence of the customs of Europe, rice is not there the
common and favourite vegetable food of the people.

A good rice field is a bog at all seasons, and at one season a bog covered with water.
It is unfit either for corn, or pasture, or vineyard, or, indeed, for any other vegetable
produce that is very useful to men; and the lands which are fit for those purposes
are not fit for rice. Even in the rice countries, therefore, the rent of rice lands cannot
regulate the rent of the other cuitivated land which can never be turned to that produce.

The food produced by a field of potatoes is not inferior in quantity to that produced
by a field of rice, and much superior to what is produced by a field of wheat. Twelve
thousand weight of potatoes from an acre of land is not a greater produce than two
thousand weight of wheat. The food or solid nourishment, indeed, which can be drawn
from each of those two plants, is not altogether in proportion to their weight, on
account of the watery nature of potatoes. Allowing, however, half the weight of this

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root to go to water, a very large allowance, such an acre of potatoes will still produce six
thousand weight of solid nourishment, three times the quantity produced by the acre
of wheat. An acre of potatoes is cultivated with less expense than an acre of wheat;
the fallow, which generally precedes the sowing of wheat, more than compensating the
hoeing and other extraordinary culture which is always given to potatoes. Should this
root ever become in any part of Europe, like rice in some rice countries, the common
and favourite vegetable food of the people, so as to occupy the same proportion of the
lands in tillage, which wheat and other sorts of grain for human food do at present, the
same quantity of culttvated land would maintain a much greater number of people; and
the labourers being generally fed with potatoes, a greater surplus would remain after
replacing all the stock, and maintaining all the labour employed in cultivation. A greater
share of this surplus, too, would belong to the landlord. Population would increase, and
rents would rise much beyond what they are at present.

The land which is fit for potatoes, is fit for almost every other useful vegetable. If
they occupied the same proportion of cultivated land which corn does at present, they
would regulate, in the same manner, the rent of the greater part of other cultivated
land.

In some parts of Lancashire, it is pretended, I have been told, that bread of oatmeal
is a heartier food for labouring people than wheaten bread, and I have frequently heard
the same doctrine held in Scotland. I am, however, somewhat doubtful of the truth of
it. The common people in Scotland, who are fed with oatmeal, are in general neither
so strong nor so handsome as the same rank of people in England, who are fed with
wheaten bread. They neither work so well, nor look so well; and as there is not the
same difference between the people of fashion in the two countries, experience would
seem to shew, that the food of the common people in Scotland is not so suitable to
the human constitution as that of their neighbours of the same rank in England. But
it seems to be otherwise with potatoes. The chairmen, porters, and coal-heavers in
London, and those unfortunate women who live by prostitution, the strongest men and
the most beautiful women perhaps in the British dominions, are said to be, the greater
part of them, from the lowest rank of people in Ireland, who are generally fed with
this root. No food can afford a more decisive proof of its nourishing quality, or of its
being peculiarly suitable to the health of the human constitution.

It is difficult to preserve potatoes through the year, and impossible to store them
like corn, for two or three years together. The fear of not being able to sell them
before they rot, discourages their cultivation, and 1s, perhaps, the chief obstacle to their
ever becoming in any great country, like bread, the principal vegetable food of all the
different ranks of the people.

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THE WEALTH OF NATIONS

PART II.

Of the Produce of Land, which sometimes does, and sometimes does not,
afford Rent.
Human food seems to be the only produce of land, which always and nec-
essarily affords some rent to the landlord. Other sorts of produce sometimes
may, and sometimes may not, according to different circumstances.

After food, clothing and lodging are the two great wants of mankind.

Land, in its original rude state, can afford the materials of clothing and lodging to a
much greater number of people than it can feed. In its improved state, it can sometimes
feed a greater number of people than it can supply with those materials; at least in
the way in which they require them, and are willing to pay for them. In the one state,
therefore, there is always a superabundance of these materials, which are frequently,
upon that account, of little or no value. In the other, there is often a scarcity, which
necessarily augments their value. In the one state, a great part of them is thrown away
as useless and the price of what is used is considered as equal only to the labour and
expense of fitting it for use, and can, therefore, afford no rent to the landlord. In the
other, they are all made use of, and there is frequently a demand for more than can
be had. Somebody is always willing to give more for every part of them, than what 1s
sufficient to pay the expense of bringing them to market. Their price, therefore, can
always afford some rent to the landlord.

The skins of the larger animals were the original materials of clothing, Among
nations of hunters and shepherds, therefore, whose food consists chiefly in the flesh
of those animals, everyman, by providing himself with food, provides himself with the
materials of more clothing than he can wear. If there was no foreign commerce, the
greater part of them would be thrown away as things of no value. This was probably
the case among the hunting nations of North America, before their country was
discovered by the Europeans, with whom they now exchange their surplus peltry, for
blankets, fire-arms, and brandy, which gives it some value. In the present commercial
state of the known world, the most barbarous nations, I believe, among whom land
property is established, have some foreign commerce of this kind, and find among
their wealthier neighbours such a demand for all the materials of clothing, which their
land produces, and which can neither be wrought up nor consumed at home, as raises
their price above what it costs to send them to those wealthier neighbours. It affords,
therefore, some rent to the landlord. When the greater part of the Highland cattle were
consumed on their own hills, the exportation of their hides made the most considerable
article of the commerce of that country, and what they were exchanged for afforded

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some addition to the rent of the Highland estates. The wool of England, which in
old times, could neither be consumed nor wrought up at home, found a market in
the then wealthier and more industrious country of Flanders, and its price afforded
something to the rent of the land which produced it. In countries not better cultivated
than England was then, or than the Highlands of Scotland are now, and which had no
foreign commerce, the materials of clothing would evidently be so superabundant, that
a great part of them would be thrown away as useless, and no part could afford any
rent to the landlord.

The materials of lodging cannot always be transported to so great a distance as those
of clothing, and do not so readily become an object of foreign commerce. When they
are superabundant in the country which produces them, it frequently happens, even in
the present commercial state of the world, that they are of no value to the landlord. A
good stone quarry in the neighbourhood of London would afford a considerable rent.
In many parts of Scotland and Wales it affords none. Barren timber for building is of
great value in a populous and well-cultivated country, and the land which produces it
affords a considerable rent. But in many parts of North America, the landlord would
be much obliged to any body who would carry away the greater part of his large trees.
In some parts of the Highlands of Scotland, the bark is the only part of the wood
which, for want of roads and water-carriage, can be sent to market; the timber is left
to rot upon the ground. When the materials of lodging are so superabundant, the part
made use of is worth only the labour and expense of fitting it for that use. It affords
no rent to the landlord, who generally grants the use of it to whoever takes the trouble
of asking it. The demand of wealthier nations, however, sometimes enables him to get
a rent for it. The paving of the streets of London has enabled the owners of some
barren rocks on the coast of Scotland to draw a rent from what never afforded any
before. The woods of Norway, and of the coasts of the Baltic, find a market in many
parts of Great Britain, which they could not find at home, and thereby afford some
rent to their proprietors.

Countries are populous, not in proportion to the number of people whom their
produce can clothe and lodge, but in proportion to that of those whom it can feed.
When food is provided, it is easy to find the necessary clothing and lodging. But though
these are at hand, it may often be difficult to find food. In some parts of the British
dominions, what is called a house may be built by one day’s labour of one man. The
simplest species of clothing, the skins of animals, require somewhat more labour to
dress and prepare them for use. They do not, however, require a great deal. Among
savage or barbarous nations, a hundredth, or little more than a hundredth part of the
labour of the whole year, will be sufficient to provide them with such clothing and
lodging as satisfy the greater part of the people. All the other ninety-nine parts are
frequently no more than enough to provide them with food.

But when, by the improvement and cultivation of land, the labour of one family
can provide food for two, the labour of half the society becomes sufficient to provide
food for the whole. The other half, therefore, or at least the greater part of them, can

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THE WEALTH OF NATIONS

be employed in providing other things, or in satisfying the other wants and fancies
of mankind. Clothing and lodging, household furniture, and what is called equipage,
are the principal objects of the greater part of those wants and fancies. The rich man
consumes no more food than his poor neighbour. In quality it may be very different,
and to select and prepare it may require more labour and art; but in quantity it is very
nearly the same. But compare the spacious palace and great wardrobe of the one, with
the hovel and the few rags of the other, and you will be sensible that the difference
between their clothing, lodging, and household furniture, is almost as great in quantity
as it is in quality. The desire of food is limited in every man by the narrow capacity of
the human stomach; but the desire of the conveniencies and ornaments of building,
dress, equipage, and household furniture, seems to have no limit or certain boundary.
Those, therefore, who have the command of more food than they themselves can
consume, are always willing to exchange the surplus, or, what is the same thing, the
price of it, for gratifications of this other kind. What is over and above satisfying the
limited desire, is given for the amusement of those desires which cannot be satisfied,
but seem to be altogether endless. The poor, in order to obtain food, exert themselves
to gratify those fancies of the rich; and to obtain it more certainly, they vie with one
another in the cheapness and perfection of their work. The number of workmen
increases with the increasing quantity of food, or with the growing improvement and
cultivation of the lands; and as the nature of their business admits of the utmost
subdivisions of labour, the quantity of materials which they can work up, increases in
a much greater proportion than their numbers. Hence arises a demand for every sort
of material which human invention can employ, either usefully or ornamentally, in
building, dress, equipage, or household furniture; for the fossils and minerals contained
in the bowels of the earth, the precious metals, and the precious stones.

Food is, in this manner, not only the original source of rent, but every other part
of the produce of land which afterwards affords rent, derives that part of its value
from the improvement of the powers of labour in producing food, by means of the
improvement and cultivation of land.

Those other parts of the produce of land, however, which afterwards afford rent,
do not afford it always. Even in improved and cultivated countries, the demand for
them is not always such as to afford a greater price than what is sufficient to pay
the labour, and replace, together with its ordinary profits, the stock which must be
employed in bringing them to market. Whether it is or is not such, depends upon
different circumstances.

Whether a coal mine, for example, can afford any rent, depends partly upon its
fertility, and partly upon its situation.

A mine of any kind may be said to be either fertile or barren, according as the
quantity of mineral which can be brought from it by a certain quantity of labour, is
greater or less than what can be brought by an equal quantity from the greater part of
other mines of the same kind.

Some coal mines, advantageously situated, cannot be wrought on account of their

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barrenness. The produce does not pay the expense. They can afford neither profit nor
rent.

There are some, of which the produce is barely sufficient to pay the labour, and
replace, together with its ordinary profits, the stock employed in working them. They
afford some profit to the undertaker of the work, but no rent to the landlord. They
can be wrought advantageously by nobody but the landlord, who, being himself the
undertaker of the work, gets the ordinary profit of the capital which he employs in it.
Many coal mines in Scotland are wrought in this manner, and can be wrought in no
other. The landlord will allow nobody else to work them without paying some rent, and
nobody can afford to pay any.

Other coal mines in the same country, sufficiently fertile, cannot be wrought on
account of their situation. A quantity of mineral, sufficient to defray the expense of
working, could be brought from the mine by the ordinary, or even less than the ordinary
quantity of labour: but in an inland country, thinly inhabited, and without either good
roads or water-carriage, this quantity could not be sold.

Coals are a less agreeable fuel than wood: they are said too to be less wholesome.
The expense of coals, therefore, at the place where they are consumed, must generally
be somewhat less than that of wood.

The price of wood, again, varies with the state of agriculture, nearly in the same
manner, and exactly for the same reason, as the price of cattle. In its rude beginnings, the
greater part of every country is covered with wood, which is then a mere incumbrance,
of no value to the landlord, who would gladly give it to any body for the cutting. As
agriculture advances, the woods are partly cleared by the progress of tillage, and partly
go to decay in consequence of the increased number of cattle. These, though they
do not increase in the same proportion as corn, which is altogether the acquisition of
human industry, yet multiply under the care and protection of men, who store up in the
season of plenty what may maintain them in that of scarcity; who, through the whole
year, furnish them with a greater quantity of food than uncultivated nature provides
for them; and who, by destroying and extirpating their enemies, secure them in the free
enjoyment of all that she provides. Numerous herds of cattle, when allowed to wander
through the woods, though they do not destroy the old trees, hinder any young ones
from coming up; so that, in the course of a century or two, the whole forest goes to
ruin. The scarcity of wood then raises its price. It affords a good rent; and the landlord
sometimes finds that he can scarce employ his best lands more advantageously than
in growing barren timber, of which the greatness of the profit often compensates the
lateness of the returns. This seems, in the present times, to be nearly the state of things
in several parts of Great Britain, where the profit of planting is found to be equal to
that of either corn or pasture. The advantage which the landlord derives from planting
can nowhere exceed, at least for any considerable time, the rent which these could
afford him; and in an inland country, which is highly cuitivated, it will frequently not
fall much short of this rent. Upon the sea-coast of a well-improved country, indeed,
if coals can conveniently be had for fuel, it may sometimes be cheaper to bring barren

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timber for building from less cultivated foreign countries than to raise it at home. In
the new town of Edinburgh, built within these few years, there is not, perhaps, a single
stick of Scotch timber.

Whatever may be the price of wood, if that of coals is such that the expense of
a coal fire is nearly equal to that of a wood one we may be assured, that at that place,
and in these circumstances, the price of coals is as high as it can be. It seems to be so
in some of the inland parts of England, particularly in Oxfordshire, where it is usual,
even in the fires of the common people, to mix coals and wood together, and where the
difference in the expense of those two sorts of fuel cannot, therefore, be very great.
Coals, in the coal countries, are everywhere much below this highest price. If they were
not, they could not bear the expense of a distant carriage, either by land or by water.
A small quantity only could be sold; and the coal masters and the coal proprietors find
it more for their interest to sell a great quantity at a price somewhat above the lowest,
than a small quantity at the highest. The most fertile coal mine, too, regulates the
ptice of coals at all the other mines in its neighbourhood. Both the proprietor and the
undertaker of the work find, the one that he can get a greater rent, the other that he can
get a greater profit, by somewhat underselling all their neighbours. Their neighbours
are soon obliged to sell at the same price, though they cannot so well afford it, and
though it always diminishes, and sometimes takes away altogether, both their rent and
their profit. Some works are abandoned altogether; others can afford no rent, and can
be wrought only by the proprietor.

The lowest price at which coals can be sold for any considerable time, is, like that
of all other commodities, the price which is barely sufficient to replace, together with
its ordinary profits, the stock which must be employed in bringing them to market. At
a coal mine for which the landlord can get no rent, but, which he must either work
himself or let it alone altogether, the price of coals must generally be nearly about this
price.

Rent, even where coals afford one, has generally a smaller share in their price than
in that of most other parts of the rude produce of land. The rent of an estate above
ground, commonly amounts to what is supposed to be a third of the gross produce;
and it is generally a rent certain and independent of the occasional variations in the
crop. In coal mines, a fifth of the gross produce is a very great rent, a tenth the common
rent; and it is seldom a rent certain, but depends upon the occasional variations in the
produce. These are so great, that in a country where thirty years purchase is considered
as a moderate price for the property of a landed estate, ten years purchase is regarded
as a good price for that of a coal mine.

The value of a coal mine to the proprietor, frequently depends as much upon its
situation as upon its fertility. That of a metallic mine depends more upon its fertility, and
less upon its situation. The coarse, and still more the precious metals, when separated
from the ore, are so valuable, that they can generally bear the expense of a very long
land, and of the most distant sea carriage. Their market is not confined to the countries
in the neighbourhood of the mine, but extends to the whole world. The copper of

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Japan makes an article of commerce in Europe; the iron of Spain in that of Chili and
Peru. The silver of Peru finds its way, not only to Europe, but from Europe to China.

The price of coals in Westmoreland or Shropshire can have little effect on their
price at Newcastle; and their price in the Lionnois can have none at all. The productions
of such distant coal mines can never be brought into competition with one another.
But the productions of the most distant metallic mines frequently may, and in fact
commonly are.

The price, therefore, of the coarse, and still more that of the precious metals, at the
most fertile mines in the world, must necessarily more or less affect their price at every
other in it. The price of copper in Japan must have some influence upon its price at the
copper mines in Europe. The price of silver in Peru, or the quantity either of labour or
of other goods which it will purchase there, must have some influence on its price, not
only at the silver mines of Europe, but at those of China. After the discovery of the
mines of Peru, the silver mines of Europe were, the greater part of them, abandoned.
The value of silver was so much reduced, that their produce could no longer pay the
expense of working them, or replace, with a profit, the food, clothes, lodging, and
other necessaries which were consumed in that operation. This was the case, too, with
the mines of Cuba and St. Domingo, and even with the ancient mines of Peru, after
the discovery of those of Potosi. The price of every metal, at every mine, therefore,
being regulated in some measure by its price at the most fertile mine in the world that
is actually wrought, it can, at the greater part of mines, do very little more than pay
the expense of working, and can seldom afford a very high rent to the landlord. Rent
accordingly, seems at the greater part of mines to have but a small share in the price of
the coarse, and a still smaller in that of the precious metals. Labour and profit make up
the greater part of both.

A sixth part of the gross produce may be reckoned the average rent of the tin
mines of Cornwall, the most fertile that are known in the world, as we are told by the
Rey. Mr. Borlace, vice-warden of the stannaries. Some, he says, afford more, and some
do not afford so much. A sixth part of the gross produce is the rent, too, of several
very fertile lead mines in Scotland.

In the silver mines of Peru, we are told by Frezier and Ulloa, the proprietor
frequently exacts no other acknowledgment from the undertaker of the mine, but that
he will grind the ore at his mill, paying him the ordinary multure or price of grinding.
Till 1736, indeed, the tax of the king of Spain amounted to one fifth of the standard
silver, which till then might be considered as the real rent of the greater part of the
silver mines of Peru, the richest which have been known in the world. If there had
been no tax, this fifth would naturally have belonged to the landlord, and many mines
might have been wrought which could not then be wrought, because they could not
afford this tax. The tax of the duke of Cornwall upon tin is supposed to amount to
more than five per cent. ot one twentieth part of the value; and whatever may be his
proportion, it would naturally, too, belong to the proprietor of the mine, if tin was duty
free. But if you add one twentieth to one sixth, you will find that the whole average

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THE WEALTH OF NATIONS

rent of the tin mines of Cornwall, was to the whole average rent of the silver mines
of Peru, as thirteen to twelve. But the silver mines of Peru are not now able to pay
even this low rent; and the tax upon silver was, in 1736, reduced from one fifth to one
tenth. Even this tax upon silver, too, gives more temptation to smuggling than the tax
of one twentieth upon tin; and smuggling must be much easier in the precious than in
the bulky commodity. The tax of the king of Spain, accordingly, is said to be very ill
paid, and that of the duke of Cornwall very well. Rent, therefore, it is probable, makes
a greater part of the price of tin at the most fertile tin mines than it does of silver at the
most fertile silver mines in the world. After replacing the stock employed in working
those different mines, together with its ordinary profits, the residue which remains to
the proprietor is greater, it seems, in the coarse, than in the precious metal.

Neither are the profits of the undertakers of silver mines commonly very great in
Peru. The same most respectable and well-informed authors acquaint us, that when any
person undertakes to work a new mine in Peru, he is universally looked upon as a man
destined to bankruptcy and ruin, and is upon that account shunned and avoided by
every body. Mining, it seems, is considered there in the same light as here, as a lottery, in
which the prizes do not compensate the blanks, though the greatness of some tempts
many adventurers to throw away their fortunes in such unprosperous projects.

As the sovereign, however, derives a considerable part of his revenue from the
produce of silver mines, the law in Peru gives every possible encouragement to the
discovery and working of new ones. Whoever discovers a new mine, is entitled to
measure off two hundred and forty-six feet in length, according to what he supposes
to be the direction of the vein, and half as much in breadth. He becomes proprietor of
this portion of the mine, and can work it without paving any acknowledgment to the
landlord. The interest of the duke of Cornwall has given occasion to a regulation nearly
of the same kind in that ancient dutchy. In waste and uninclosed lands, any person who
discovers a tin mine may mark out its limits to a certain extent, which is called bounding
a mine. The bounder becomes the real proprietor of the mine, and may either work it
himself, or give it in lease to another, without the consent of the owner of the land, to
whom, however, a very small acknowledgment must be paid upon working it. In both
regulations, the sacred rights of private property are sacrificed to the supposed interests
of public revenue.

The same encouragement is given in Peru to the discovery and working of new
gold mines; and in gold the king’s tax amounts only to a twentieth part of the standard
rental. It was once a fifth, and afterwards a tenth, as in silver; but it was found that the
work could not bear even the lowest of these two taxes. If it is rare, however, say the
same authors, Frezier and Ulloa, to find a person who has made his fortune by a silver,
it is still much rarer to find one who has done so by a gold mine. This twentieth part
seems to be the whole rent which is paid by the greater part of the gold mines of Chili
and Peru. Gold, too, is much more liable to be smuggled than even silver; not only on
account of the superior value of the metal in proportion to its bulk, but on account of
the peculiar way in which nature produces it. Silver is very seldom found virgin, but,

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like most other metals, is generally mineralized with some other body, from which it
is impossible to separate it in such quantities as will pay for the expense, but by a very
laborious and tedious operation, which cannot well be carried on but in work-houses
erected for the purpose, and, therefore, exposed to the inspection of the king’s officers.
Gold, on the contrary, is almost always found virgin. It is sometimes found in pieces
of some bulk; and, even when mixed, in small and almost insensible particles, with
sand, earth, and other extraneous bodies, it can be separated from them by a very short
and simple operation, which can be carried on in any private house by any body who
is possessed of a small quantity of mercury. If the king’s tax, therefore, is but ill paid
upon silver, it is likely to be much worse paid upon gold; and rent must make a much
smaller part of the price of gold than that of silver.

The lowest price at which the precious metals can be sold, or the smallest quantity
of other goods for which they can be exchanged, during any considerable time, is
regulated by the same principles which fix the lowest ordinary price of all other goods.
The stock which must commonly be employed, the food, clothes, and lodging, which
must commonly be consumed in bringing them from the mine to the market, determine
it. It must at least be sufficient to replace that stock, with the ordinary profits.

Their highest price, however, seems not to be necessarily determined by any thing
but the actual scarcity or plenty of these metals themselves. It is not determined by that
of any other commodity, in the same manner as the price of coals is by that of wood,
beyond which no scarcity can ever raise it. Increase the scarcity of gold to a certain
degree, and the smallest bit of it may become more precious than a diamond, and
exchange for a greater quantity of other goods.

The demand for those metals arises partly from their utility, and partly from their
beauty. If you except iron, they are more useful than, perhaps, any other metal. As
they are less liable to rust and impurity, they can more easily be kept clean; and the
utensils, either of the table or the kitchen, are often, upon that account, more agreeable
when made of them. A silver boiler is more cleanly than a lead, copper, or tin one;
and the same quality would render a gold boiler still better than a silver one. Their
principal merit, however, arises from their beauty, which renders them peculiarly fit for
the ornaments of dress and furniture. No paint or dye can give so splendid a colour as
gilding. The merit of their beauty is greatly enhanced by their scarcity. With the greater
part of rich people, the chief enjoyment of riches consists in the parade of riches;
which, in their eye, is never so complete as when they appear to possess those decisive
marks of opulence which nobody can possess but themselves. In their eyes, the merit
of an object, which is in any degree either useful or beautiful, is greatly enhanced by its
scarcity, or by the great labour which it requires to collect any considerable quantity of
it; a labour which nobody can afford to pay but themselves. Such objects they are willing
to purchase at a higher price than things much more beautiful and useful, but more
common. These qualities of utility, beauty, and scarcity, are the original foundation of
the high price of those metals, or of the great quantity of other goods for which they
can everywhere be exchanged. This value was antecedent to, and independent of their

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being employed as coin, and was the quality which fitted them for that employment.
That employment, however, by occasioning a new demand, and by diminishing the
quantity which could be employed in any other way, may have afterwards contributed
to keep up or increase their value.

The demand for the precious stones arises altogether from their beauty. They are
of no use but as ornaments; and the merit of their beauty is greatly enhanced by
their scarcity, or by the difficulty and expense of getting them from the mine. Wages
and profit accordingly make up, upon most occasions, almost the whole of the high
price. Rent comes in but for a very small share, frequently for no share; and the most
fertile mines only afford any considerable rent. When Tavernier, a jeweller, visited the
diamond mines of Golconda and Visiapour, he was informed that the sovereign of the
country, for whose benefit they were wrought, had ordered all of them to be shut up
except those which yielded the largest and finest stones. The other, it seems, were to the
proprietor not worth the working.

As the prices, both of the precious metals and of the precious stones, is regulated
all over the world by their price at the most fertile mine in it, the rent which a mine of
either can afford to its proprietor is in proportion, not to its absolute, but to what may
be called its relative fertility, or to its superiority over other mines of the same kind. If
new mines were discovered, as much superior to those of Potosi, as they were superior
to those of Europe, the value of silver might be so much degraded as to render even
the mines of Potosi not worth the working. Before the discovery of the Spanish West
Indies, the most fertile mines in Europe may have afforded as great a rent to their
proprietors as the richest mines in Peru do at present. Though the quantity of silver
was much less, it might have exchanged for an equal quantity of other goods, and the
proprietor’s share might have enabled him to purchase or command an equal quantity
either of labour or of commodities.

The value, both of the produce and of the rent, the real revenue which they
afforded, both to the public and to the proprietor, might have been the same.

The most abundant mines, either of the precious metals, or of the precious stones,
could add little to the wealth of the world. A produce, of which the value is principally
derived from its scarcity, is necessarily degraded by its abundance. A service of plate,
and the other frivolous ornaments of dress and furniture, could be purchased for a
smaller quantity of commodities; and in this would consist the sole advantage which
the world could derive from that abundance.

It is otherwise in estates above ground. The value, both of their produce and of
their rent, is in proportion to their absolute, and not to their relative fertility. The
land which produces a certain quantity of food, clothes, and lodging, can always feed,
clothe, and lodge, a certain number of people; and whatever may be the proportion of
the landlord, it will always give him a proportionable command of the labour of those
people, and of the commodities with which that labour can supply him. The value of
the most barren land is not diminished by the neighbourhood of the most fertile. On
the contrary, it is generally increased by it. The great number of people maintained by

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the fertile lands afford a market to many parts of the produce of the barren, which
they could never have found among those whom their own produce could maintain.

Whatever increases the fertility of land in producing food, increases not only the
value of the lands upon which the improvement is bestowed, but contributes likewise
to increase that of many other lands, by creating a new demand for their produce. That
abundance of food, of which, in consequence of the improvement of land, many
people have the disposal beyond what they themselves can consume, is the great cause
of the demand, both for the precious metals and the precious stones, as well as for
every other conveniency and ornament of dress, lodging, household furniture, and
equipage. Food not only constitutes the principal part of the riches of the world, but
it is the abundance of food which gives the principal part of their value to many other
sorts of riches. The poor inhabitants of Cuba and St. Domingo, when they were first
discovered by the Spaniards, used to wear little bits of gold as ornaments in their hair
and other parts of their dress. They seemed to value them as we would do any little
pebbles of somewhat more than ordinary beauty, and to consider them as just worth
the picking up, but not worth the refusing to any body who asked them, They gave
them to their new guests at the first request, without seeming to think that they had
made them any very valuable present. They were astonished to observe the rage of the
Spaniards to obtain them; and had no notion that there could anywhere be a country
in which many people had the disposal of so great a superfluity of food; so scanty
always among themselves, that, for a very small quantity of those glittering baubles,
they would willingly give as much as might maintain a whole family for many years.
Could they have been made to understand this, the passion of the Spaniards would not
have surprised them.

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PART III.

Of the variations in the Proportion between the respective Values of that sort
of Produce which always affords Rent, and of that which sometimes does, and
sometimes does not, afford Rent.

The increasing abundance of food, in consequence of the increasing improvement
and cultivation, must necessarily increase the demand for every part of the produce
of land which is not food, and which can be applied either to use or to ornament. In
the whole progress of improvement, it might, therefore, be expected there should be
only one variation in the comparative values of those two different sorts of produce.
The value of that sort which sometimes does, and sometimes does not afford rent,
should constantly rise in proportion to that which always affords some rent. As art and
industry advance, the materials of clothing and lodging, the useful fossils and materials
of the earth, the precious metals and the precious stones, should gradually come to
be more and more in demand, should gradually exchange for a greater and a greater
quantity of food; or, in other words, should gradually become dearer and dearer. This,
accordingly, has been the case with most of these things upon most occasions, and
would have been the case with all of them upon all occasions, if particular accidents
had not, upon some occasions, increased the supply of some of them in a still greater
proportion than the demand.

The value of a free-stone quarry, for example, will necessarily increase with the
increasing improvement and population of the country round about it, especially if
it should be the only one in the neighbourhood. But the value of a silver mine, even
though there should not be another within a thousand miles of it, will not necessarily
increase with the improvement of the country in which it is situated. The market for the
produce of a free-stone quarry can seldom extend more than a few miles round about
it, and the demand must generally be in proportion to the improvement and population
of that small district; but the market for the produce of a silver mine may extend
over the whole known world. Unless the world in general, therefore, be advancing in
improvement and population, the demand for silver might not be at all increased by the
improvement even of a large country in the neighbourhood of the mine. Even though
the world in general were improving, yet if, in the course of its improvements, new
mines should be discovered, much more fertile than any which had been known before,
though the demand for silver would necessarily increase, yet the supply might increase
in so much a greater proportion, that the real price of that metal might gradually fall;
that is, any given quantity, a pound weight of it, for example, might gradually purchase
or command a smaller and a smaller quantity of labour, or exchange for a smaller and a
smaller quantity of corn, the principal part of the subsistence of the labourer.

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ADAM SMITH

The great market for silver is the commercial and civilized part of the world.

If, by the general progress of improvement, the demand of this market should
increase, while, at the same time, the supply did not increase in the same proportion, the
value of silver would gradually rise in proportion to that of corn. Any given quantity of
silver would exchange for a greater and a greater quantity of corn; or, in other words,
the average money price of corn would gradually become cheaper and cheaper.

If, on the contrary, the supply, by some accident, should increase, for many years
together, in a greater proportion than the demand, that metal would gradually become
cheaper and cheaper; or, in other words, the average money price of corn would, in
spite of all improvements, gradually become dearer and dearer.

But if, on the other hand, the supply of that metal should increase nearly in the
same proportion as the demand, it would continue to purchase or exchange for nearly
the same quantity of corn; and the average money price of corn would, in spite of all
improvements. continue very nearly the same.

These three seem to exhaust all the possible combinations of events which can
happen in the progress of improvement; and during the course of the four centuries
preceding the present, if we may judge by what has happened both in France and
Great Britain, each of those three different combinations seems to have taken place in
the European market, and nearly in the same order, too, in which I have here set them
down.

Digression concerning the Variations in the value of Silver during the Course of
the Four last Centuries.

First Period.—In 1350, and for some time before, the average price of the quarter
of wheat in England seems not to have been estimated lower than four ounces of
silver, Tower weight, equal to about twenty shillings of our present money. From this
price it seems to have fallen gradually to two ounces of silver, equal to about ten
shillings of our present money, the price at which we find it estimated in the beginning
of the sixteenth century, and at which it seems to have continued to be estimated till
about 1570.

In 1350, being the 25th of Edward III. was enacted what is called the Statute
of Labourers. In the preamble, it complains much of the insolence of servants, who
endeavoured to raise their wages upon their masters. It therefore ordains, that all
servants and labourers should, for the future, be contented with the same wages and
liveries (liveries in those times signified not only clothes, but provisions) which they had
been accustomed to receive in the 20th year of the king, and the four preceding years;
that, upon this account, their livery-wheat should nowhere be estimated higher than
tenpence a-bushel, and that it should always be in the option of the master to deliver
them either the wheat or the money. Tenpence: a-bushel, therefore, had, in the 25th of
Edward II. been reckoned a very moderate price of wheat, since it required a particular
statute to oblige servants to accept of it in exchange for their usual livery of provisions;
and it had been reckoned a reasonable price ten years before that, or in the 16th year
of the king, the term to which the statute refers. But in the 16th year of Edward HI.

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THE WEALTH OF NATIONS

tenpence contained about half an ounce of silver, Tower weight, and was nearly equal
to half-a-crown of our present money. Four ounces of silver, Tower weight, therefore,
equal to six shillings and eightpence of the money of those times, and to near twenty
shillings of that of the present, must have been reckoned a moderate price for the
quarter of eight bushels.

This statute is surely a better evidence of what was reckoned, in those times, a
moderate price of grain, than the prices of some particular years, which have generally
been recorded by historians and other writers, on account of their extraordinary
dearness or cheapness, and from which, therefore, it is difficult to form any judgment
concerning what may have been the ordinary price. There are, besides, other reasons
for believing that, in the beginning of the fourteenth century, and for some time before,
the common price of wheat was not less than four ounces of silver the quarter, and
that of other grain in proportion.

In 1309, Ralph de Born, prior of St Augustine’s, Canterbury, gave a feast upon his
installation-day, of which William Thorn has preserved, not only the bill of fare, but
the prices of many particulars. In that feast were consumed, 1st, fifty-three quarters of
wheat, which cost nineteen pounds, or seven shillings, and twopence a-quarter, equal
to about one-and-twenty shillings and sixpence of our present money; 2dly, fifty-eight
quarters of malt, which cost seventeen pounds ten shillings, or six shillings a-quarter,
equal to about eighteen shillings of our present money; 3dly, twenty quarters of oats,
which cost four pounds, or four shillings a-quarter, equal to about twelve shillings
of our present money. The prices of malt and oats seem here to lie higher than their
ordinary proportion to the price of wheat.

These prices are not recorded, on account of their extraordinary dearness or
cheapness, but are mentioned accidentally, as the prices actually paid for large quantities
of grain consumed at a feast, which was famous for its magnificence.

In 1262, being the 51st of Henry UI. was revived an ancient statute, called the assize
of bread and ale, which, the king says in the preamble, had been made in the times of
his progenitors, some time kings of England. It is probably, therefore, as old at least
as the time of his grandfather, Henry II. and may have been as old as the Conquest. It
regulates the price of bread according as the prices of wheat may happen to be, from
one shilling to twenty shillings the quarter of the money of those times. But statutes of
this kind are generally presumed to provide with equal care for all deviations from the
middle price, for those below it, as well as for those above it. Ten shillings, therefore,
containing six ounces of silver, Tower weight, and equal to about thirty shillings of our
present money, must, upon this supposition, have been reckoned the middle price of
the quarter of wheat when this statute was first enacted, and must have continued to
be so in the 51st of Henry IH. We cannot, therefore, be very wrong in supposing that
the middle price was not less than one-third of the highest price at which this statute
regulates the price of bread, or than six shillings and eightpence of the money of those
times, containing four ounces of silver, Tower weight.

From these different facts, therefore, we seem to have some reason to conclude

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that, about the middle of the fourteenth century, and for a considerable time before,
the average or ordinary price of the quarter of wheat was not supposed to be less than
four ounces of silver, Tower weight.

From about the middle of the fourteenth to the beginning of the sixteenth century,
what was reckoned the reasonable and moderate, that is, the ordinary or average price
of wheat, seems to have sunk gradually to about one half of this price; so as at last to
have fallen to about two ounces of silver, Tower weight, equal to about ten shillings of
our present money. It continued to be estimated at this price till about 1570.

In the household book of Henry, the fifth earl of Northumberland, drawn up in
1512 there are two different estimations of wheat. In one of them it is computed at six
shilling and eightpence the quarter, in the other at five shillings and eightpence only. In
1512, six shillings and eightpence contained only two ounces of silver, Tower weight,
and were equal to about ten shillings of our present money.

From the 25th of Edward II. to the beginning of the reign of Elizabeth, during
the space of more than two hundred years, six shillings and eightpence, it appears
from several different statutes, had continued to be considered as what is called the
moderate and reasonable, that is, the ordinary or average price of wheat. The quantity
of silver, however, contained in that nominal sum was, during the course of this period,
continually diminishing in consequence of some alterations which were made in the
coin. But the increase of the value of silver had, it seems, so far compensated the
diminution of the quantity of it contained in the same nominal sum, that the legislature
did not think it worth while to attend to this circumstance.

Thus, in 1436, it was enacted, that wheat might be exported without a licence when
the price was so low as six shillings and eightpence: and in 1463, it was enacted, that
no wheat should be imported if the price was not above six shillings and eightpence
the quarter: The legislature had imagined, that when the price was so low, there could
be no inconveniency in exportation, but that when it rose higher, it became prudent
to allow of importation. Six shillings and eightpence, therefore, containing about the
same quantity of silver as thirteen shillings and fourpence of our present money (one-
third part less than the same nominal sum contained in the time of Edward II), had,
in those times, been considered as what is called the moderate and reasonable price of
wheat.

In 1554, by the 1st and 2nd of Philip and Mary, and in 1558, by the Ist of Elizabeth,
the exportation of wheat was in the same manner prohibited, whenever the price of
the quarter should exceed six shillings and eightpence, which did not then contain two
penny worth more silver than the same nominal sum does at present. But it had soon
been found, that to restrain the exportation of wheat till the price was so very low,
was, in reality, to prohibit it altogether. In 1562, therefore, by the 5th of Elizabeth, the
exportation of wheat was allowed from certain ports, whenever the price of the quarter
should not exceed ten shillings, containing nearly the same quantity of silver as the like
nominal sum does at present. This price had at this time, therefore, been considered
as what is called the moderate and reasonable price of wheat. It agrees nearly with the

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estimation of the Northumberland book in 1512.

That in France the average price of grain was, in the same manner, much lowet
in the end of the fifteenth and beginning of the sixteenth century, than in the two
centuries preceding, has been observed both by Mr Dupré de St Maur, and by the
elegant author of the Essay on the Policy of Grain. Its price, during the same period,
had probably sunk in the same manner through the greater part of Europe.

This rise in the value of silver, in proportion to that of corn, may either have been
owing altogether to the increase of the demand for that metal, in consequence of
increasing improvement and cultivation, the supply, in the mean time, continuing the
same as before; or, the demand continuing the same as before, it may have been owing
altogether to the gradual diminution of the supply: the greater part of the mines which
were then known in the world being much exhausted, and, consequently, the expense of
working them much increased; or it may have been owing partly to the one, and partly
to the other of those two circumstances. In the end of the fifteenth and beginning of
the sixteenth centuries, the greater part of Europe was approaching towards a more
settled from of government than it had enjoyed for several ages before. The increase
of security would naturally increase industry and improvement; and the demand for
the precious metals, as well as for every other luxury and ornament, would naturally
increase with the increase of riches. A greater annual produce would require a greater
quantity of coin to circulate it; and a greater number of rich people would require a
greater quantity of plate and other ornaments of silver. It is natural to suppose, too,
that the greater part of the mines which then supplied the European market with silver
might be a good deal exhausted, and have become more expensive in the working. They
had been wrought, many of them, from the time of the Romans.

It has been the opinion, however, of the greater part of those who have written
upon the prices of commodities in ancient times, that, from the Conquest, perhaps
from the invasion of Julius Caesar, till the discovery of the mines of America, the
value of silver was continually diminishing. This opinion they seem to have been led
into, partly by the observations which they had occasion to make upon the prices
both of corn and of some other parts of the rude produce of land, and partly by the
popular notion, that as the quantity of silver naturally increases in every country with
the increase of wealth, so its value diminishes as it quantity increases.

In their observations upon the prices of corn, three different circumstances seem
frequently to have misled them.

First, in ancient times, almost all rents were paid in kind; in a certain quantity of
corn, cattle, poultry, etc. It sometimes happened, however, that the landlord would
stipulate, that he should be at liberty to demand of the tenant, either the annual payment
in kind or a certain sum of money instead of it. The price at which the payment in kind
was in this manner exchanged for a certain sum of money, is in Scotland called the
conversion price. As the option is always in the landlord to take either the substance or
the price, it is necessary, for the safety of the tenant, that the conversion price should
rather be below than above the average market price. In many places, accordingly, it

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is not much above one half of this price. Through the greater part of Scotland this
custom still continues with regard to poultry, and in some places with regard to cattle.
It might probably have continued to take place, too, with regard to corn, had not the
institution of the public fiars put an end to it. These are annual valuations, according
to the judgment of an assize, of the average price of all the different sorts of grain,
and of all the different qualities of each, according to the actual market price in every
different county. This institution rendered it sufficiently safe for the tenant, and much
more convenient for the landlord, to convert, as they call it, the corn rent, rather at
what should happen to be the price of the fiars of each year, than at any certain fixed
price. But the writers who have collected the prices of corn in ancient times seem
frequently to have mistaken what is called in Scotland the conversion price for the
actual market price. Fleetwood acknowledges, upon one occasion, that he had made
this mistake. As he wrote his book, however, for a particular purpose, he does not think
proper to make this acknowledgment till after transcribing this conversion price fifteen
times. The price is eight shillings the quarter of wheat. This sum in 1423, the year at
which he begins with it, contained the same quantity of silver as sixteen shillings of
our present money. But in 1562, the year at which he ends with it, it contained no more
than the same nominal sum does at present.

Secondly, they have been misled by the slovenly manner in which some ancient
statutes of assize had been sometimes transcribed by lazy copiers, and sometimes,
perhaps, actually composed by the legislature.

The ancient statutes of assize seem to have begun always with determining what
ought to be the price of bread and ale when the price of wheat and barley were at the
lowest; and to have proceeded gradually to determine what it ought to be, according
as the prices of those two sorts of grain should gradually rise above this lowest price.
But the transcribers of those statutes seem frequently to have thought it sufficient to
copy the regulation as far as the three or four first and lowest prices; saving in this
manner their own labour, and judging, I suppose, that this was enough to show what
proportion ought to be observed in all higher prices.

Thus, in the assize of bread and ale, of the 51st of Henry II. the price of bread
was regulated according to the different prices of wheat, from one shilling to twenty
shillings the quarter of the money of those times. But in the manuscripts from which
all the different editions of the statutes, preceding that of Mr Ruffhead, were printed,
the copiers had never transcribed this regulation beyond the price of twelve shillings.
Several writers, therefore, being misled by this faulty transcription, very naturally
conclude that the middle price, or six shillings the quarter, equal to about eighteen
shillings of our present money, was the ordinary or average price of wheat at that time.

In the statute of Tumbrel and Pillory, enacted nearly about the same time, the price
of ale is regulated according to every sixpence rise in the price of barley, from two
shillings, to four shillings the quarter. That four shillings, however, was not considered
as the highest price to which barley might frequently rise in those times, and that these
prices were only given as an example of the proportion which ought to be observed

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in all other prices, whether higher or lower, we may infer from the last words of the
statute: “Et sic deinceps crescetur vel diminuetur per sex denarios.” The expression is
very slovenly, but the meaning is plain enough, “that the price of ale is in this manner
to be increased or diminished according to every sixpence rise or fall in the price of
barley.” In the composition of this statute, the legislature itself seems to have been as
negligent as the copiers were in the transcription of the other.

In an ancient manuscript of the Regiam Majestatem, an old Scotch law book, there
is a statute of assize, in which the price of bread is regulated according to all the different
prices of wheat, from tenpence to three shillings the Scotch boll, equal to about half
an English quarter. Three shillings Scotch, at the time when this assize is supposed to
have been enacted, were equal to about nine shillings sterling of our present money
Mr Ruddiman seems {See his Preface to Anderson’s Diplomata Scotiae.} to conclude
from this, that three shillings was the highest price to which wheat ever rose in those
times, and that tenpence, a shilling, or at most two shillings, were the ordinary prices.
Upon consulting the manuscript, however, it appears evidently, that all these prices are
only set down as examples of the proportion which ought to be observed between
the respective prices of wheat and bread. The last words of the statute are “reliqua
judicabis secundum praescripta, habendo respectum ad pretium bladi.”—”You shall
judge of the remaining cases, according to what is above written, having respect to the
price of corn.”

Thirdly, they seem to have been misled too, by the very low price at which wheat
was sometimes sold in very ancient times; and to have imagined, that as its lowest
price was then much lower than in later times its ordinary price must likewise have
been much lower. They might have found, however, that in those ancient times its
highest price was fully as much above, as its lowest price was below any thing that
had ever been known in later times. Thus, in 1270, Fleetwood gives us two prices of
the quarter of wheat. The one is four pounds sixteen shillings of the money of those
times, equal to fourteen pounds eight shillings of that of the present; the other is six
pounds eight shillings, equal to nineteen pounds four shillings of our present money.
No price can be found in the end of the fifteenth, or beginning of the sixteenth century,
which approaches to the extravagance of these. The price of corn, though at all times
liable to variation varies most in those turbulent and disorderly societies, in which the
interruption of all commerce and communication hinders the plenty of one part of the
country from relieving the scarcity of another. In the disorderly state of England under
the Plantagenets, who governed it from about the middle of the twelfth till towards the
end of the fifteenth century, one district might be in plenty, while another, at no great
distance, by having its crop destroyed, either by some accident of the seasons, or by the
incursion of some neighbouring baron, might be suffering all the horrors of a famine;
and yet if the lands of some hostile lord were interposed between them, the one might
not be able to give the least assistance to the other. Under the vigorous administration
of the Tudors, who governed England during the latter part of the fifteenth, and
through the whole of the sixteenth century, no baron was powerful enough to dare to

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disturb the public security.

The reader will find at the end of this chapter all the prices of wheat which have
been collected by Fleetwood, from 1202 to 1597, both inclusive, reduced to the money
of the present times, and digested, according to the order of time, into seven divisions
of twelve years each. At the end of each division, too, he will find the average price
of the twelve years of which it consists. In that long period of time, Fleetwood has
been able to collect the prices of no more than eighty years; so that four years are
wanting to make out the last twelve years. I have added, therefore, from the accounts
of Eton college, the prices of 1598, 1599, 1600, and 1601. It is the only addition
which I have made. The reader will see, that from the beginning of the thirteenth
till after the middle of the sixteenth century, the average price of each twelve years
grows gradually lower and lower; and that towards the end of the sixteenth century
it begins to rise again. The prices, indeed, which Fleetwood has been able to collect,
seem to have been those chiefly which were remarkable for extraordinary dearness or
cheapness; and I do not pretend that any very certain conclusion can be drawn from
them. So far, however, as they prove any thing at all, they confirm the account which I
have been endeavouring to give. Fleetwood himself, however, seems, with most other
writers, to have believed, that, during all this period, the value of silver, in consequence
of its increasing abundance, was continually diminishing. The prices of corn, which
he himself has collected, certainly do not agree with this opinion. They agree perfectly
with that of Mr Dupré de St Maur, and with that which I have been endeavouring to
explain. Bishop Fleetwood and Mr Dupré de St Maur are the two authors who seem
to have collected, with the greatest diligence and fidelity, the prices of things in ancient
times. It is some what curious that, though their opinions are so very different, their
facts, so far as they relate to the price of corn at least, should coincide so very exactly.

It is not, however, so much from the low price of corn, as from that of some
other parts of the rude produce of land, that the most judicious writers have inferred
' the great value of silver in those very ancient times. Corn, it has been said, being a
sort of manufacture, was, in those rude ages, much dearer in proportion than the
greater part of other commodities; it is meant, I suppose, than the greater part of
unmanufactured commodities, such as cattle, poultry, game of all kinds, etc. That in
those times of poverty and barbarism these were proportionably much cheaper than
corn, is undoubtedly true. But this cheapness was not the effect of the high value of
silver, but of the low value of those commodities. It was not because silver would
in such times purchase or represent a greater quantity of labour, but because such
commodities would purchase or represent a much smaller quantity than in times of
more opulence and improvement. Silver must certainly be cheaper in Spanish America
than in Europe; in the country where it is produced, than in the country to which it is
brought, at the expense of a long carriage both by land and by sea, of a freight, and
an insurance. One-and-twenty pence halfpenny sterling, however, we are told by Ulloa,
was, not many years ago, at Buenos Ayres, the price of an ox chosen from a herd of
three or four hundred. Sixteen shillings sterling, we are told by Mr Byron, was the price

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THE WEALTH OF NATIONS

of a good horse in the capital of Chili. In a country naturally fertile, but of which the
far greater part is altogether uncultivated, cattle, poultry, game of all kinds, etc. as they
can be acquired with a very small quantity of labour, so they will purchase or command
but a very small quantity. The low money price for which they may be sold, is no
proof that the real value of silver is there very high, but that the real value of those
commodities is very low.

Labour, it must always be remembered, and not any particular commodity, or
set of commodities, is the real measure of the value both of silver and of all other
commodities.

But in countries almost waste, or but thinly inhabited, cattle, poultry, game of all
kinds, etc. as they are the spontaneous productions of Nature, so she frequently produces
them in much greater quantities than the consumption of the inhabitants requires. In
such a state of things, the supply commonly exceeds the demand. In different states of
society, in different states of improvement, therefore, such commodities will represent,
or be equivalent, to very different quantities of labour.

In every state of society, in every stage of improvement, corn is the production of
human industry. But the average produce of every sort of industry is always suited, more
ot less exactly, to the average consumption; the average supply to the average demand.
In every different stage of improvement, besides, the raising of equal quantities of
corn in the same soil and climate, will, at an average, require nearly equal quantities
of labour; or, what comes to the same thing, the price of nearly equal quantities;
the continual increase of the productive powers of labour, in an improved state of
cultivation, being more or less counterbalanced by the continual increasing price of
cattle, the principal instruments of agriculture. Upon all these accounts, therefore, we
may rest assured, that equal quantities of corn will, in every state of society, in every
stage of improvement, more nearly represent, or be equivalent to, equal quantities of
labour, than equal quantities of any other part of the rude produce of land. Corn,
accordingly, it has already been observed, is, in all the different stages of wealth and
improvement, a more accurate measure of value than any other commodity or set
of commodities. In all those different stages, therefore, we can judge better of the
real value of silver, by comparing it with corn, than by comparing it with any other
commodity or set of commodities.

Corn, besides, or whatever else is the common and favourite vegetable food of
the people, constitutes, in every civilized country, the principal part of the subsistence
of the labourer. In consequence of the extension of agriculture, the land of every
country produces a much greater quantity of vegetable than of animal food, and the
labourer everywhere lives chiefly upon the wholesome food that is cheapest and most
abundant. Butcher’s meat, except in the most thriving countries, or where labour is
most highly rewarded, makes but an insignificant part of his subsistence; poultry makes
a still smaller part of it, and game no part of it. In France, and even in Scotland, where
labour is somewhat better rewarded than in France, the labouring poor seldom eat
butcher’s meat, except upon holidays, and other extraordinary occasions. The money

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ADAM SMITH

price of labour, therefore, depends much more upon the average money price of corn,
the subsistence of the labourer, than upon that of butcher’s meat, or of any other
part of the rude produce of land. The real value of gold and silver, therefore, the real
quantity of labour which they can purchase or command, depends much more upon
the quantity of corn which they can purchase or command, than upon that of butchet’s
meat, or any other part of the rude produce of land.

Such slight observations, however, upon the prices either of corn or of other
commodities, would not probably have misled so many intelligent authors, had they not
been influenced at the same time by the popular notion, that as the quantity of silver
naturally increases in every country with the increase of wealth, so its value diminishes
as its quantity increases. This notion, however, seems to be altogether groundless.

The quantity of the precious metals may increase in any country from two different
causes; either, first, from the increased abundance of the mines which supply it; or,
secondly, from the increased wealth of the people, from the increased produce of their
annual labour. The first of these causes is no doubt necessarily connected with the
diminution of the value of the precious metals; but the second is not.

When more abundant mines are discovered, a greater quantity of the precious
metals is brought to market; and the quantity of the necessaries and conveniencies of
life for which they must be exchanged being the same as before, equal quantities of
the metals must be exchanged for smaller quantities of commodities. So far, therefore,
as the increase of the quantity of the precious metals in any country arises from the
increased abundance of the mines, it is necessarily connected with some diminution
of their value.

When, on the contrary, the wealth of any country increases, when the annual
produce of its labour becomes gradually greater and greater, a greater quantity of
coin becomes necessary in order to circulate a greater quantity of commodities: and
the people, as they can afford it, as they have more commodities to give for it, will
~ naturally purchase a greater and a greater quantity of plate. The quantity of their coin
will increase from necessity; the quantity of their plate from vanity and ostentation,
ot from the same reason that the quantity of fine statues, pictures, and of every other
luxury and curiosity, is likely to increase among them. But as statuaries and painters
ate not likely to be worse rewarded in times of wealth and prosperity, than in times of
poverty and depression, so gold and silver are not likely to be worse paid for.

The price of gold and silver, when the accidental discovery of more abundant
mines does not keep it down, as it naturally rises with the wealth of every country; so,
whatever be the state of the mines, it is at all times naturally higher tn a rich than in
a poor country. Gold and silver, like all other commodities, naturally seek the market
where the best price is given for them, and the best price is commonly given for
every thing in the country which can best afford it. Labour, it must be remembered,
is the ultimate price which is paid for every thing; and in countries where labour 1s
equally well rewarded, the money price of labour will be in proportion to that of the
subsistence of the labourer. But gold and silver will naturally exchange for a greater

145

_ THE WEALTH OF NATIONS

quantity of subsistence in a rich than in a poor country; in a country which abounds
with subsistence, than in one which is but indifferently supplied with it. If the two
countries are at a great distance, the difference may be very great; because, though
the metals naturally fly from the worse to the better market, yet it may be difficult to
transport them in such quantities as to bring their price nearly to a level in both. If
the countries are near, the difference will be smaller, and may sometimes be scarce
perceptible; because in this case the transportation will be easy. China is a much richer
country than any part of Europe, and the difference between the price of subsistence
in China and in Europe is very great. Rice in China is much cheaper than wheat is any
where in Europe. England is a much richer country than Scotland, but the difference
between the money price of corn in those two countries is much smaller, and is but just
perceptible. In proportion to the quantity or measure, Scotch corn generally appears
to be a good deal cheaper than English; but, in proportion to its quality, it is certainly
somewhat dearer. Scotland receives almost every year very large supplies from England,
and every commodity must commonly be somewhat dearer in the country to which it
is brought than in that from which it comes. English corn, therefore, must be dearer
in Scotland than in England; and yet in proportion to its quality, or to the quantity and
goodness of the flour or meal which can be made from it, it cannot commonly be sold
higher there than the Scotch corn which comes to market in competition with it.

The difference between the money price of labour in China and in Europe, is still
greater than that between the money price of subsistence; because the real recompence
of labour is higher in Europe than in China, the greater part of Europe being in an
improving state, while China seems to be standing still. The money price of labour is
lower in Scotland than in England, because the real recompence of labour is much
lower: Scotland, though advancing to greater wealth, advances much more slowly than
England. The frequency of emigration from Scotland, and the rarity of it from England,
sufficiently prove that the demand for labour is very different in the two countries. The
proportion between the real recompence of labour in different countries, it must be
remembered, is naturally regulated, not by their actual wealth or poverty, but by their
advancing, stationary, or declining condition.

Gold and silver, as they are naturally of the greatest value among the richest, so
they are naturally of the least value among the poorest nations. Among savages, the
poorest of all nations, they are scarce of any value.

In great towns, corn is always dearer than in remote parts of the country. This,
however, is the effect, not of the real cheapness of silver, but of the real dearness of
corn. It does not cost less labour to bring silver to the great town than to the remote
parts of the country; but it costs a great deal more to bring corn.

In some very rich and commercial countries, such as Holland and the territory
of Genoa, corn is dear for the same reason that it is dear in great towns. They do not
produce enough to maintain their inhabitants. They are rich in the industry and skill of
their artificers and manufacturers, in every sort of machinery which can facilitate and
abridge labour; in shipping, and in all the other instruments and means of carriage and

146

ADAM SMITH >

commerce: but they are poor in corn, which, as it must be brought to them from distant
_ Countries, must, by an addition to its price, pay for the carriage from those countries, It
does not cost less \sbour to‘bring silver to Amsterdam than to Dantzic; but it costs a
great deal more to bring corn. The real cost of silver must be nearly the same in both
Places; but that of corn must be very different. Diminish the real opulence either of
| Holland or of the territory of Genoa, while the number of their inhabitants remains
the samme; diminish ther power of supplying themselves from distant countries; and the

* pace of corn, instead of sinking with that diminution in the quantity of their silver,
| which must necessarily accompany this declension, cither as its cause or as its effect,
_ will rise to the price of a famine. When we are in want of necessaries, we must part with
i all superfiuitics, of which the value, as it rises in times of opulence and prosperity, so it
sinks in tunes of poverty and distress. It is otherwise with necessaries. Their real price,
} the quantity of labour which they can purchase or command, rises in times of poverty
| and distress, and sinks in times of opulence and prosperity, which are always times of
re for they could not otherwise be times of opulence and prosperity.
| Corn is 2 necessary, silver is only a superfluity.

; Whatever, therefore, may have been the increase in the quantity of the precious
| metals, which, during the period between the middle of the fourteenth and that of the
_ sixscents century, arose from the increase of wealth and improvement, it could have
29 tendency to diminish their value, cither in Great Britain, or in my other part of
| Busope. If those who have collected the prices of things in ancient times, therefore,
| had, during this period, no reason to infer the diminution of the value of silver from

gay Observations which they had made upon the prices either of corn, or of other
| commodities, they bad still less reason to infer it from any supposed increase of wealth
; and smprovement.
- Second Pesiod —But how various soever may have been the opinions of the
| eerned concerning the progress of the value of silver during the first period, they are
unanimous concerning it during the second.
“ “Prom about 1570 to about 1640, during a period of about seventy years, the variation
in the proportion between the value of silver and that of corn held a quite opposite
_ course. Silver sunk in its real valuc, or would exchange for a smaller quantity of labour
| then before: 2nd corn rose in its nominal price, and, instead of being commonly sold
~ fox aout two ounces of silver the quarter, or about ten shillings of our present money,
| came to be sold for six and cight ounces of silver the quarter, or about thirty and forty
shillings of our present moncy.

“The discovery of the abundant mines of America seems to have been the sole cause
| of this Ganinution in the value of silver, in proportion to that of corn. It is accounted
| fox, zccordingy, in the same manner by every body; and there never has been any
| dispute, eithes about the fact, or about the cause of it. The greater part of Europe was,
during this petiod, advancing in industry and improvement, and the demand for silver
” gaust consequently have been increasing; but the increase of the supply had, it seems,

$0 fer exceeded that of the demand, that the value of that metal sunk considerably. The

147 .

THE WEALTH OF NATIONS —

discovery of the mines of America, it is to be observed, does not seem to have had any
very sensible effect upon the prices of things in England till after 1570; though even
the mines of Potosi had been discovered more than twenty years before.

From 1595 to 1620, both inclusive, the average price of the quarter of nine bushels
of the best wheat, at Windsor market, appears, from the accounts of Eton college,
to have been £ 2:1:6 9/13. From which sum, neglecting the fraction, and deducting a
ninth, or 4s. 7 1/3d., the price of the quarter of eight bushels comes out to have been £/
1:16:10 2/3. And from this sum, neglecting likewise the fraction, and deducting a ninth,
ot 4s. 1 1/9d., for the difference between the price of the best wheat and that of the
middle wheat, the price of the middle wheat comes out to have been about £ 1:12:8
8/9, or about six ounces and one-third of an ounce of silver.

From 1621 to 1636, both inclusive, the average price of the same measure of the
best wheat, at the same market, appears, from the same accounts, to have been £ 2:10s.;
from which, making the like deductions as in the foregoing case, the average price of
the quarter of eight bushels of middle wheat comes out to have been £ 1:19:6, or about
seven ounces and two-thirds of an ounce of silver.

Third Period —Between 1630 and 1640, or about 1636, the effect of the discovery
of the mines of America, in reducing the value of silver, appears to have been
completed, and the value of that metal seems never to have sunk lower in proportion
to that of corn than it was about that time. It seems to have risen somewhat in the
coutse of the present century, and it had probably begun to do so, even some time
before the end of the last.

From 1637 to 1700, both inclusive, being the sixty-four last years of the last
century the average price of the quarter of nine bushels of the best wheat, at Windsor
market, appears, from the same accounts, to have been £ 2:11:0 1/3, which is only 1s.
0 1/3d. dearer than it had been during the sixteen years before. But, in the course of
these sixty-four years, there happened two events, which must have produced a much
greater scarcity of corn than what the course of the season is would otherwise have
occasioned, and which, therefore, without supposing any further reduction in the value
of silver, will much more than account for this very small enhancement of price.

The first of these events was the civil war, which, by discouraging tillage and
interrupting commerce, must have raised the price of corn much above what the
course of the seasons would otherwise have occasioned. It must have had this effect,
more ot less, at all the different markets in the kingdom, but particularly at those in the
neighbourhood of London, which require to be supplied from the greatest distance.
In 1648, accordingly, the price of the best wheat, at Windsor market, appears, from
the same accounts, to have been £ 4:5s., and, in 1649, to have been £4, the quarter of
nine bushels. The excess of those two years above £ 2:10s. (the average price of the
sixteen years preceding 1637 is £ 3:5s., which, divided among the sixty four last years
of the last century, will alone very nearly account for that small enhancement of price
which seems to have taken place in them.) These, however, though the highest, are by
no means the only high prices which seem to have been occasioned by the civil wars.

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The second event was the bounty upon the exportation of corn, granted in
1688. The bounty, it has been thought by many people, by encouraging tillage, may,
in a long course of years, have occasioned a greater abundance, and, consequently, a
greater cheapness of corn in the home market, than what would otherwise have taken
place there. How far the bounty could produce this effect at any time I shall examine
hereafter: I shall only observe at present, that between 1688 and 1700, it had not time
to produce any such effect. During this short period, its only effect must have been,
by encouraging the exportation of the surplus produce of every year, and thereby
hindering the abundance of one year from compensating the scarcity of another, to
taise the price in the home market. The scarcity which prevailed in England, from
1693 to 1699, both inclusive, though no doubt principally owing to the badness of the
seasons, and, therefore, extending through a considerable part of Europe, must have
been somewhat enhanced by the bounty. In 1699, accordingly, the further exportation
of corn was prohibited for nine months.

There was a third event which occurred in the course of the same period, and which,
though it could not occasion any scarcity of corn, nor, perhaps, any augmentation in the
teal quantity of silver which was usually paid for it, must necessarily have occasioned
some augmentation in the nominal sum. This event was the great debasement of the
silver coin, by clipping and wearing. This evil had begun in the reign of Charles II.
and had gone on continually increasing till 1695; at which time, as we may learn from
Mr Lowndes, the current silver coin was, at an average, near five-and-twenty per cent.
below its standard value. But the nominal sum which constitutes the market price of
every commodity is necessarily regulated, not so much by the quantity of silver, which,
according to the standard, ought to be contained in it, as by that which, it is found by
experience, actually is contained in it. This nominal sum, therefore, is necessarily higher
when the coin is much debased by clipping and wearing, than when near to its standard
value.

In the course of the present century, the silver coin has not at any time been more
below its standard weight than it is at present. But though very much defaced, its value
has been kept up by that of the gold coin, for which it is exchanged. For though, before
the late recoinage, the gold coin was a good deal defaced too, it was less so than the
silver. In 1695, on the contrary, the value of the silver coin was not kept up by the gold
coin; a guinea then commonly exchanging for thirty shillings of the worn and clipt silver.
Before the late recoinage of the gold, the price of silver bullion was seldom higher than
five shillings and sevenpence an ounce, which is but frvepence above the mint price. But
in 1695, the common price of silver bullion was six shillings and fivepence an ounce,
{Lowndes’s Essay on the Silver Coin, 68.} which is fifteen pence above the mint price.
Even before the late recoinage of the gold, therefore, the coin, gold and silver together,
when compared with silver bullion, was not supposed to be more than eight per cent.
below its standard value, In 1695, on the contrary, it had been supposed to be near five-
and-twenty per cent. below that value. But in the beginning of the present century, that
is, immediately after the great recoinage in King William’s time, the greater part of the

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current silver coin must have been still nearer to its standard weight than it is at present.
In the course of the present century, too, there has been no great public calamity, such
as a civil war, which could either discourage tillage, or interrupt the interior commerce
of the country. And though the bounty which has taken place through the greater part
of this century, must always raise the price of corn somewhat higher than it otherwise
would be in the actual state of tillage; yet, as in the course of this century, the bounty
has had full time to produce all the good effects commonly imputed to it to encourage
tillage, and thereby to increase the quantity of corn in the home market, it may, upon
the principles of a system which I shall explain and examine hereafter, be supposed
to have done something to lower the price of that commodity the one way, as well as
to raise it the other. It is by many people supposed to have done more. In the sixty-
four years of the present century, accordingly, the average price of the quarter of
nine bushels of the best wheat, at Windsor market, appears, by the accounts of Eton
college, to have been £ 2:0:6 10/32, which is about ten shillings and sixpence, or more
than five-and-twenty percent. cheaper than it had been during the sixty-four last years
of the last century; and about nine shillings and sixpence cheaper than it had been
during the sixteen years preceding 1636, when the discovery of the abundant mines
of America may be supposed to have produced its full effect; and about one shilling
cheaper than it had been in the twenty-six years preceding 1620, before that discovery
can well be supposed to have produced its full effect. According to this account, the
average price of middle wheat, during these sixty-four first years of the present century,
comes out to have been about thirty-two shillings the quarter of eight bushels.

The value of silver, therefore, seems to have risen somewhat in proportion to that
of corn during the course of the present century, and it had probably begun to do so
even some time before the end of the last.

In 1687, the price of the quarter of nine bushels of the best wheat, at Windsor
market, was £/ 1:5:2, the lowest price at which it had ever been from 1595.

In 1688, Mr Gregory King, a man famous for his knowledge in matters of this
kind, estimated the average price of wheat, in years of moderate plenty, to be to the
grower 3s. 6d. the bushel, or eight-and-twenty shillings the quarter. The grower’s price I
understand to be the same with what is sometimes called the contract price, or the price
at which a farmer contracts for a certain number of years to deliver a certain quantity
of corn to a dealer. As a contract of this kind saves the farmer the expense and trouble
of marketing, the contract price is generally lower than what is supposed to be the
average market price. Mr King had judged eight-and-twenty shillings the quarter to be
at that time the ordinary contract price in years of moderate plenty. Before the scarcity
occasioned by the late extraordinary course of bad seasons, it was, I have been assured,
the ordinary contract price in all common years.

In 1688 was granted the parliamentary bounty upon the exportation of corn. The
country gentlemen, who then composed a still greater proportion of the legislature
than they do at present, had felt that the money price of corn was falling. The bounty
was an expedient to raise it artificially to the high price at which it had frequently been

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sold in the times of Charles I. and II. It was to take place, therefore, till wheat was so
high as fortyeight shillings the quarter; that is, twenty shillings, or 5-7ths dearer than
Mr King had, in that very yeat, estimated the grower’s price to be in times of moderate
plenty. If his calculations deserve any part of the reputation which they have obtained
very universally, eight-and-forty shillings the quarter was a price which, without some
such expedient as the bounty, could not at that time be expected, except in years of
extraordinary scarcity. But the government of King William was not then fully settled.
It was in no condition to refuse anything to the country gentlemen, from whom it was,
at that very time, soliciting the first establishment of the annual land-tax.

The value of silver, therefore, in proportion to that of corn, had probably risen
somewhat before the end of the last century; and it seems to have continued to do so
during the course of the greater part of the present, though the necessary operation of
the bounty must have hindered that rise from being so sensible as it otherwise would
have been in the actual state of tillage.

In plentiful years, the bounty, by occasioning an extraordinary exportation,
necessarily raises the price of corn above what it otherwise would be in those years. To
encourage tillage, by keeping up the price of corn, even in the most plentiful years, was
the avowed end of the institution.

In years of great scarcity, indeed, the bounty has generally been suspended. It
must, however, have had some effect upon the prices of many of those years. By
the extraordinary exportation which it occasions in years of plenty, it must frequently
hinder the plenty of one year from compensating the scarcity of another.

Both in years of plenty and in years of scarcity, therefore, the bounty raises the
price of corn above what it naturally would be in the actual state of tillage. If during
the sixty-four first years of the present century, therefore, the average price has been
lower than during the sixty-four last years of the last century, it must, in the same state
of tillage, have been much mote so, had it not been for this operation of the bounty.

But, without the bounty, it may be said the state of tillage would not have been
the same. What may have been the effects of this institution upon the agriculture of
the country, I shall endeavour to explain hereafter, when I come to treat particularly
of bounties. I shall only observe at present, that this rise in the value of silver, in
proportion to that of corn, has not been peculiar to England. It has been observed to
have taken place in France during the same period, and nearly in the same proportion,
too, by three very faithful, diligent, and laborious collectors of the prices of corn,
Mr Dupré de St Maur, Mr Messance, and the author of the Essay on the Police of
Grain. But in France, till 1764, the exportation of grain was by law prohibited; and it
is somewhat difficult to suppose, that nearly the same diminution of price which took
place in one country, notwithstanding this prohibition, should, in another, be owing to
the extraordinary encouragement given to exportation.

It would be more proper, perhaps, to consider this variation in the average money
price of corn as the effect rather of some gradual tise in the real value of silver in
the European market, than of any fall in the real average value of corn. Corn, it has

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already been observed, is, at distant periods of time, a more accurate measure of value
than either silver or, perhaps, any other commodity. When, after the discovery of the
abundant mines of America, corn rose to three and four times its former money price,
this change was universally ascribed, not to any rise in the real value of corn, but to a
fall in the real value of silver. If, during the sixty-four first years of the present century,
therefore, the average money price of corn has fallen somewhat below what it had been
during the greater part of the last century, we should, in the same mannet, impute this
change, not to any fall in the real value of corn, but to some rise in the real value of
silver in the European market.

The high price of corn during these ten or twelve years past, indeed, has occasioned
a suspicion that the real value of silver still continues to fall in the European market.
This high price of corn, however, seems evidently to have been the effect of the
extraordinary unfavourableness of the seasons, and ought, therefore, to be regarded,
not as a permanent, but as a transitory and occasional event. The seasons, for these ten
ot twelve years past, have been unfavourable through the greater part of Europe; and
the disorders of Poland have very much increased the scarcity in all those countries,
which, in dear years, used to be supplied from that market. So long a course of bad
seasons, though not a very common event, is by no means a singular one; and whoever
has inquired much into the history of the prices of corn in former times, will be at no
loss to recollect several other examples of the same kind. Ten years of extraordinary
scarcity, besides, are not more wonderful than ten years of extraordinary plenty. The
low price of corn, from 1741 to 1750, both inclusive, may very well be set in opposition
to its high price during these last eight or ten years. Prom 1741 to 1750, the average
price of the quarter of nine bushels of the best wheat, at Windsor market, it appears
from the accounts of Eton college, was only £ 1:13:9 4/5, which is nearly 6s.3d. below
the average price of the sixty-four first years of the present century. The average price
of the quarter of eight bushels of middle wheat comes out, according to this account,
to have been, during these ten years, only £ 1:6:8.

Between 1741 and 1750, however, the bounty must have hindered the price of corn
from falling so low in the home market as it naturally would have done. During these
ten years, the quantity of all sorts of grain exported, it appears from the custom-house
books, amounted to no less than 8,029,156 quarters, one bushel. The bounty paid for
this amounted to £ 1,514,962:17:4 1/2. In 1749, accordingly, Mr Pelham, at that time
prime minister, observed to the house of commons, that, for the three years preceding,
a very extraordinary sum had been paid as bounty for the exportation of corn. He had
good reason to make this observation, and in the following year he might have had still
better. In that single year, the bounty paid amounted to no less than £ 324,176:10:6.
{See Tracts on the Corn Trade, Tract 3,} It is unnecessary to observe how much this
forced exportation must have raised the price of corn above what it otherwise would
have been in the home market.

At the end of the accounts annexed to this chapter the reader will find the particular
account of those ten years separated from the rest. He will find there, too, the particular

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account of the preceding ten years, of which the average is likewise below, though not
so much below, the general average of the sixty-four first years of the century. The year
1740, however, was a year of extraordinary scarcity. These twenty years preceding 1750
may very well be set in opposition to the twenty preceding 1770. As the former were a
good deal below the general average of the century, notwithstanding the intervention
of one or two dear years; so the latter have been a good deal above it, notwithstanding
the intervention of one or two cheap ones, of 1759, for example. If the former have
not been as much below the general average as the latter have been above it, we ought
probably to impute it to the bounty. The change has evidently been too sudden to be
ascribed to any change in the value of silver, which is always slow and gradual. The
suddenness of the effect can be accounted for only by a cause which can operate
suddenly, the accidental variations of the seasons.

The money price of labour in Great Britain has, indeed, risen during the course of
the present century. This, however, seems to be the effect, not so much of any diminution
in the value of silver in the European market, as of an increase in the demand for
labour in Great Britain, arising from the great, and almost universal prosperity of the
country. In France, a country not altogether so prosperous, the money price of labour
has, since the middle of the last century, been observed to sink gradually with the
average money price of corn. Both in the last century and in the present, the day wages
of common labour are there said to have been pretty uniformly about the twentieth
part of the average price of the septier of wheat; a measure which contains a little
more than four Winchester bushels. In Great Britain, the real recompence of labour, it
has already been shewn, the real quantities of the necessaries and conveniencies of life
which are given to the labourer, has increased considerably during the course of the
present century. The rise in its money price seems to have been the effect, not of any
diminution of the value of silver in the general market of Europe, but of a rise in the
real price of labour, in the particular market of Great Britain, owing to the peculiarly
happy circumstances of the country.

For some time after the first discovery of America, silver would continue to sell at
its former, or not much below its former price. The profits of mining would for some
time be very great, and much above their natural rate. Those who imported that metal
into Europe, however, would soon find that the whole annual importation could not
be disposed of at this high price. Silver would gradually exchange for a smaller and a
smaller quantity of goods. Its price would sink gradually lower and lower, till it fell to its
natural price; or to what was just sufficient to pay, according to their natural rates, the
wages of the labour, the profits of the stock, and the rent of the land, which must be
paid in order to bring it from the mine to the market. In the greater part of the silver
mines of Peru, the tax of the king of Spain, amounting to a tenth of the gross produce,
eats up, it has already been observed, the whole rent of the land. This tax was originally
a half; it soon afterwards fell to a third, then to a fifth, and at last to a tenth, at which
late it still continues. In the greater part of the silver mines of Peru, this, it seems, is all
that remains, after replacing the stock of the undertaker of the work, together with its

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ordinary profits; and it seems to be universally acknowledged that these profits, which
were once very high, are now as low as they can well be, consistently with carrying on
the works.

The tax of the king of Spain was reduced to a fifth of the registered silver in
1504 {Solorzano, vol, ii.}, one-and-forty years before 1545, the date of the discovery
of the mines of Potosi. In the course of ninety years, or before 1636, these mines,
the most fertile in all America, had time sufficient to produce their full effect, or to
reduce the value of silver in the European market as low as it could well fall, while
it continued to pay this tax to the king of Spain. Ninety years is time sufficient to
reduce any commodity, of which there is no monopoly, to its natural price, or to the
lowest price at which, while it pays a particular tax, it can continue to be sold for any
considerable time together.

The price of silver in the European market might, perhaps, have fallen still lower,
and it might have become necessary either to reduce the tax upon it, not only to one-
tenth, as in 1736, but to one twentieth, in the same manner as that upon gold, or to
give up working the greater part of the American mines which are now wrought. The
gradual increase of the demand for silver, or the gradual enlargement of the market for
the produce of the silver mines of America, is probably the cause which has prevented
this from happening, and which has not only kept up the value of silver in the European
market, but has perhaps even raised it somewhat higher than it was about the middle
of the last century.

Since the first discovery of America, the market for the produce of its silver mines
has been growing gradually more and more extensive.

First, the market of Europe has become gradually more and more extensive.
Since the discovery of America, the greater part of Europe has been much improved.
England, Holland, France, and Germany; even Sweden, Denmark, and Russia, have
all advanced considerably, both in agriculture and in manufactures. Italy seems not to
have gone backwards. The fall of Italy preceded the conquest of Peru. Since that time
it seems rather to have recovered a little. Spain and Portugal, indeed, are supposed
to have gone backwards. Portugal, however, is but a very small part of Europe, and
the declension of Spain is not, perhaps, so great as is commonly imagined. In the
beginning of the sixteenth century, Spain was a very poor country, even in comparison
with France, which has been so much improved since that time. It was the well known
remark of the emperor Charles V. who had travelled so frequently through both
countries, that every thing abounded in France, but that every thing was wanting in
Spain. The increasing produce of the agriculture and manufactures of Europe must
necessarily have required a gradual increase in the quantity of silver coin to circulate it;
and the increasing number of wealthy individuals must have required the like increase
in the quantity of their plate and other ornaments of silver.

Secondly, America is itself a new market, for the produce of its own silver mines;
and as its advances in agriculture, industry, and population, are much more rapid
than those of the most thriving countries in Europe, its demand must increase much

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more rapidly. The English colonies are altogether a new market, which, partly for
coin, and partly for plate, requires a continual augmenting supply of silver through a
great continent where there never was any demand before. The greater part, too, of
the Spanish and Portuguese colonies, ate altogether new markets. New Granada, the
Yucatan, Paraguay, and the Brazils, were, before discovered by the Europeans, inhabited
by savage nations, who had neither arts nor agriculture. A considerable degree of both
has now been introduced into all of them. Even Mexico and Peru, though they cannot
be considered as altogether new markets, are certainly much more extensive ones
than they ever were before. After all the wonderful tales which have been published
concerning the splendid state of those countries in ancient times, whoever reads, with
any degree of sober judgment, the history of their first discovery and conquest, will
evidently discern that, in arts, agriculture, and commerce, their inhabitants were much
more ignorant than the Tartars of the Ukraine are at present. Even the Peruvians,
the more civilized nation of the two, though they made use of gold and silver as
ornaments, had no coined money of any kind. Their whole commerce was carried on
by barter, and there was accordingly scarce any division of labour among them. Those
who cultivated the ground, were obliged to build their own houses, to make their own
household furniture, their own clothes, shoes, and instruments of agriculture. The few
artificers among them are said to have been all maintained by the sovereign, the nobles,
and the priests, and were probably their servants or slaves. All the ancient arts of
Mexico and Peru have never furnished one single manufacture to Europe. The Spanish
armies, though they scarce ever exceeded five hundred men, and frequently did not
amount to half that number, found almost everywhere great difficulty in procuring
subsistence. The famines which they are said to have occasioned almost wherever they
went, in countries, too, which at the same time are represented as very populous and
well cultivated, sufficiently demonstrate that the story of this populousness and high
cultivation is in a great measure fabulous. The Spanish colonies are under a government
in many respects less favourable to agriculture, improvement, and population, than
that of the English colonies. They seem, however, to be advancing in all those much
more rapidly than any country in Europe. In a fertile soil and happy climate, the great
abundance and cheapness of land, a circumstance common to all new colonies, is,
it seems, so great an advantage, as to compensate many defects in civil government.
Frezier, who visited Peru in 1713, represents Lima as containing between twenty-
five and twenty-eight thousand inhabitants. Ulloa, who resided in the same country
between 1740 and 1746, represents it as containing more than fifty thousand. The
difference in their accounts of the populousness of several other principal towns of
Chili and Peru is nearly the same; and as there seems to be no reason to doubt of the
good information of either, it marks an increase which is scarce inferior to that of the
English colonies. America, therefore, is a new market for the produce of its own silver
mines, of which the demand must increase much more rapidly than that of the most
thriving country in Europe.

Thirdly, the East Indies is another market for the produce of the silver mines of

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America, and a market which, from the time of the first discovery of those mines, has
been continually taking off a greater and a greater quantity of silver. Since that time,
the direct trade between America and the Hast Indies, which is carried on by means
of the Acapulco ships, has been continually augmenting, and the indirect intercourse
by the way of Europe has been augmenting in a still greater proportion. During the
sixteenth century, the Portuguese were the only European nation who carried on any
regular trade to the East Indies. In the last years of that century, the Dutch began to
encroach upon this monopoly, and in a few years expelled them from their principal
settlements in India. During the greater part of the last century, those two nations
divided the most considerable part of the East India trade between them; the trade
of the Dutch continually augmenting in a still greater proportion than that of the
Portuguese declined. The English and French carried on some trade with India in the
last century, but it has been greatly augmented in the course of the present. The East
India trade of the Swedes and Danes began in the course of the present century. Even
the Muscovites now trade regularly with China, by a sort of caravans which go over
land through Siberia and Tartary to Pekin. The East India trade of all these nations, if
we except that of the French, which the last war had well nigh annihilated, has been
almost continually augmenting. The increasing consumptions of Hast India goods in
Europe is, it seems, so great, as to afford a gradual increase of employment to them all.
Tea, for example, was a drug very little used in Europe, before the middle of the last
century. At present, the value of the tea annually imported by the English East India
company, for the use of their own countrymen, amounts to more than a million and a
half a year; and even this is not enough; a great deal more being constantly smuggled
into the country from the ports of Holland, from Gottenburgh in Sweden, and from
the coast of France, too, as long as the French East India company was in prosperity.
The consumption of the porcelain of China, of the spiceries of the Moluccas, of the
piece goods of Bengal, and of innumerable other articles, has increased very nearly in
a like proportion. The tonnage, accordingly, of all the European shipping employed in
the East India trade, at any one time during the last century, was not, perhaps, much
greater than that of the English East India company before the late reduction of their
shipping.

But in the East Indies, particularly in China and Indostan, the value of the precious
metals, when the Europeans first began to trade to those countries, was much higher
than in Europe; and it still continues to be so. In rice countries, which generally yield
two, sometimes three crops in the year, each of them more plentiful than any common
crop of corn, the abundance of food must be much greater than in any corn country
of equal extent. Such countries are accordingly much more populous. In them, too,
the tich, having a greater superabundance of food to dispose of beyond what they
themselves can consume, have the means of purchasing a much greater quantity of the
labour of other people. The retinue of a grandee in China or Indostan accordingly is,
by all accounts, much more numerous and splendid than that of the richest subjects in
Europe. The same superabundance of food, of which they have the disposal, enables

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them to give a greater quantity of it for all those singular and rare productions which
nature furnishes but in very small quantities; such as the precious metals and the
precious stones, the great objects of the competition of the rich. Though the mines,
therefore, which supplied the Indian market, had been as abundant as those which
supplied the European, such commodities would naturally exchange for a greater
quantity of food in India than in Europe. But the mines which supplied the Indian
market with the precious metals seem to have been a good deal less abundant, and
those which supplied it with the precious stones a good deal more so, than the mines
which supplied the European. The precious metals, therefore, would naturally exchange
in India for a somewhat greater quantity of the precious stones, and for a much greater
quantity of food than in Europe. The money price of diamonds, the greatest of all
superfluities, would be somewhat lower, and that of food, the first of all necessaries,
a great deal lower in the one country than in the other. But the real price of labour,
the real quantity of the necessaries of life which is given to the labourer, it has already
been observed, is lower both in China and Indostan, the two great markets of India,
than it is through the greater part of Europe. The wages of the labourer will there
purchase a smaller quantity of food: and as the money price of food is much lower in
India than in Europe, the money price of labour is there lower upon a double account;
upon account both of the small quantity of food which it will purchase, and of the
low price of that food. But in countries of equal art and industry, the money price of
the greater part of manufactures will be in proportion to the money price of labour;
and in manufacturing art and industry, China and Indostan, though inferior, seem not
to be much inferior to any part of Europe. The money price of the greater part of
manufactures, therefore, will naturally be much lower in those great empires than it is
anywhere in Europe. Through the greater part of Europe, too, the expense of land-
carriage increases very much both the real and nominal price of most manufactures. It
costs more labour, and therefore more money, to bring first the materials, and afterwards
~ the complete manufacture to market. In China and Indostan, the extent and variety of
inland navigations save the greater part of this labour, and consequently of this money,
and thereby reduce still lower both the real and the nominal price of the greater part
of their manufactures. Upon all these accounts, the precious metals are a commodity
which it always has been, and still continues to be, extremely advantageous to carry
from Europe to India. There is scarce any commodity which brings a better price
there; or which, in proportion to the quantity of labour and commodities which it costs
in Europe, will purchase or command a greater quantity of labour and commodities
in India. It is more advantageous, too, to carry silver thither than gold; because in
China, and the greater part of the other markets of India, the proportion between
fine silver and fine gold is but as ten, or at most as twelve to one; whereas in Europe
it is as fourteen or fifteen to one. In China, and the greater part of the other markets
of India, ten, or at most twelve ounces of silver, will purchase an ounce of gold; in
Europe, it requires from fourteen to fifteen ounces. In the cargoes, therefore, of the
greater part of European ships which sail to India, silver has generally been one of the

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most valuable articles. It is the most valuable article in the Acapulco ships which sail
to Manilla. The silver of the new continent seems, in this manner, to be one of the
principal commodities by which the commerce between the two extremities of the old
one is carried on; and it is by means of it, in a great measure, that those distant parts of
the world are connected with one another.

In order to supply so very widely extended a market, the quantity of silver annually
brought from the mines must not only be sufficient to support that continued increase,
both of coin and of plate, which is required in all thriving countries; but to repair that
continual waste and consumption of silver which takes place in all countries where that
metal is used.

The continual consumption of the precious metals in coin by wearing, and in
plate both by wearing and cleaning, is very sensible; and in commodities of which
the use is so very widely extended, would alone require a very great annual supply.
The consumption of those metals in some particular manufactures, though it may not
perhaps be greater upon the whole than this gradual consumption, is, however, much
mote sensible, as it is much more rapid. In the manufactures of Birmingham alone,
the quantity of gold and silver annually employed in gilding and plating, and thereby
disqualified from ever afterwards appearing in the shape of those metals, is said to
amount to more than fifty thousand pounds sterling. We may from thence form some
notion how great must be the annual consumption in all the different parts of the
world, either in manufactures of the same kind with those of Birmingham, or in laces,
embroideries, gold and silver stuffs, the gilding of books, furniture, etc. A considerable
quantity, too, must be annually lost in transporting those metals from one place to
another both by sea and by land. In the greater part of the governments of Asia,
besides, the almost universal custom of concealing treasures in the bowels of the earth,
of which the knowledge frequently dies with the person who makes the concealment,
must occasion the loss of a still greater quantity.

The quantity of gold and silver imported at both Cadiz and Lisbon (including not
only what comes under register, but what may be supposed to be smuggled) amounts,
according to the best accounts, to about six millions sterling a-year.

According to Mr Meggens {Postscript to the Universal Merchant p. 15 and 16. This
postscript was not printed till 1756, three years after the publication of the book, which
has never had a second edition. The postscript is, therefore, to be found in few copies;
it corrects several errors in the book.}, the annual importation of the precious metals
into Spain, at an average of six years, viz. from 1748 to 1753, both inclusive, and into
Portugal, at an average of seven years, viz. from 1747 to 1753, both inclusive, amounted
in silver to 1,101,107 pounds weight, and in gold to 49,940 pounds weight. The silver,
at sixty two shillings the pound troy, amounts to £ 3,413,431:10s. sterling. The gold,
at forty-four guineas and a half the pound troy, amounts to £ 2,333,446:14s. sterling,
Both together amount to £ 5,746,878:4s. sterling. The account of what was imported
under register, he assures us, is exact. He gives us the detail of the particular places
from which the gold and silver were brought, and of the particular quantity of each

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metal, which, according to the register, each of them afforded. He makes an allowance,
too, for the quantity of each metal which, he supposes, may have been smuggled. The
gteat experience of this judicious merchant renders his opinion of considerable weight.

According to the eloquent, and sometimes well-informed, author of the
Philosophical and Political History of the Establishment of the Europeans in the two
Indies, the annual importation of registered gold and silver into Spain, at an average
of eleven years, viz. from 1754 to 1764, both inclusive, amounted to 13,984,185 3/5
piastres of ten reals. On account of what may have been smuggled, however, the whole
annual importation, he supposes, may have amounted to seventeen millions of plastres,
which, at 4s. 6d. the piastre, is equal to £ 3,825,000 sterling. He gives the detail, too, of
the particular places from which the gold and silver were brought, and of the particular
quantities of each metal, which according to the register, each of them afforded. He
informs us, too, that if we were to judge of the quantity of gold annually imported
from the Brazils to Lisbon, by the amount of the tax paid to the king of Portugal,
which it seems, is one-fifth of the standard metal, we might value it at eighteen millions
of cruzadoes, or forty-five millions of French livres, equal to about twenty millions
sterling. On account of what may have been smuggled, however, we may safely, he
says, add to this sum an eighth more, or £ 250,000 sterling, so that the whole will
amount to £ 2,250,000 sterling. According to this account, therefore, the whole annual
importation of the precious metals into both Spain and Portugal, mounts to about £
6,075,000 sterling.

Several other very well authenticated, though manuscript accounts, I have been
assured, agree in making this whole annual importation amount, at an average, to about
six millions sterling; sometimes a little more, sometimes a little less.

The annual importation of the precious metals into Cadiz and Lisbon, indeed, is
not equal to the whole annual produce of the mines of America. Some part is sent
annually by the Acapulco ships to Manilla; some part is employed in a contraband
~ trade, which the Spanish colonies carry on with those of other European nations; and
some part, no doubt, remains in the country. The mines of America, besides, are by
no means the only gold and silver mines in the world. They, are, however, by far the
most abundant. The produce of all the other mines which are known is insignificant, it
is acknowledged, in comparison with theit’s; and the far greater part of their produce,
it is likewise acknowledged, is annually imported into Cadiz and Lisbon. But the
consumption of Birmingham alone, at the rate of fifty thousand pounds a-year, is
equal to the hundred-and-twentieth part of this annual importation, at the rate of six
millions a-year. The whole annual consumption of gold and silver, therefore, in all the
different countries of the world where those metals are used, may, perhaps, be nearly
equal to the whole annual produce. The remainder may be no more than sufficient to
supply the increasing demand of all thriving countries. It may even have fallen so far
short of this demand, as somewhat to raise the price of those metals in the European

market.
The quantity of brass and iron annually brought from the mine to the market, is

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out of all proportion greater than that of gold and silver. We do not, however, upon
this account, imagine that those coarse metals are likely to multiply beyond the demand,
or to become gradually cheaper and cheaper. Why should we imagine that the precious
metals are likely to do so? The coarse metals, indeed, though harder, are put to much
harder uses, and, as they are of less value, less care is employed in their preservation.
The precious metals, however, are not necessarily immortal any more than they, but are
liable, too, to be lost, wasted, and consumed, in a great variety of ways.

The price of all metals, though liable to slow and gradual variations, varies less
from year to year than that of almost any other part of the rude produce of land:
and the price of the precious metals is even less liable to sudden variations than that
of the coarse ones. The durableness of metals is the foundation of this extraordinary
steadiness of price. The corn which was brought to market last year will be all, or almost
all, consumed, long before the end of this year. But some part of the iron which was
brought from: the mine two or three hundred years ago, may be still in use, and, perhaps,
some part of the gold which was brought from it two or three thousand years ago.
The different masses of corn, which, in different years, must supply the consumption
of the world, will always be nearly in proportion to the respective produce of those
different years. But the proportion between the different masses of tron which may
be in use in two different years, will be very little affected by any accidental difference
in the produce of the iron mines of those two years; and the proportion between the
masses of gold will be still less affected by any such difference in the produce of the
gold mines. Though the produce of the greater part of metallic mines, therefore, varies,
perhaps, still more from year to year than that of the greater part of corn fields, those
variations have not the same effect upon the price of the one species of commodities
as upon that of the other.

Variations in the Proportion between the respective Values of Gold and Silver.

Before the discovery of the mines of America, the value of fine gold to fine silver
was regulated in the different mines of Europe, between the proportions of one to
ten and one to twelve; that is, an ounce of fine gold was supposed to be worth from
ten to twelve ounces of fine silver. About the middle of the last century, it came to be
regulated, between the proportions of one to fourteen and one to fifteen; that is, an
ounce of fine gold came to be supposed worth between fourteen and fifteen ounces of
fine silver. Gold rose in its nominal value, or in the quantity of silver which was given
for it. Both metals sunk in their real value, or in the quantity of labour which they could
purchase; but silver sunk more than gold. Though both the gold and silver mines of
America exceeded in fertility all those which had ever been known before, the fertility
of the silver mines had, it seems, been proportionally still greater than that of the gold
ones.

The great quantities of silver carried annually from Europe to India, have, in some
of the English settlements, gradually reduced the value of that metal in proportion to
gold. In the mint of Calcutta, an ounce of fine gold is supposed to be worth fifteen
ounces of fine silver, in the same mannet as in Europe. It is in the mint, perhaps, rated

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too high for the value which it bears in the market of Bengal. In China, the proportion
of gold to silver still continues as one to ten, or one to twelve. In Japan, it is said to be
as One to eight.

The proportion between the quantities of gold and silver annually imported into
Europe, according to Mr Meggens’ account, is as one to twenty-two nearly; that is, for
one ounce of gold there are imported a little more than twenty-two ounces of silver.
The great quantity of silver sent annually to the East Indies reduces, he supposes, the
quantities of those metals which remain in Europe to the proportion of one to fourteen
or fifteen, the proportion of their values. The proportion between their values, he
seems to think, must necessarily be the same as that between their quantities, and would
therefore be as one to twenty-two, were it not for this greater exportation of silver.

But the ordinary proportion between the respective values of two commodities is
not necessarily the same as that between the quantities of them which are commonly
in the market. The price of an ox, reckoned at ten guineas, is about three score times
the price of a lamb, reckoned at 3s. 6d. It would be absurd, however, to infer from
thence, that there are commonly in the market three score lambs for one ox; and it
would be just as absurd to infer, because an ounce of gold will commonly purchase
from fourteen or fifteen ounces of silver, that there are commonly in the market only
fourteen or fifteen ounces of silver for one ounce of gold.

The quantity of silver commonly in the market, it is probable, is much greater in
proportion to that of gold, than the value of a certain quantity of gold is to that of an
equal quantity of silver. The whole quantity of a cheap commodity brought to market
is commonly not only greater, but of greater value, than the whole quantity of a dear
one. The whole quantity of bread annually brought to market, is not only greater, but
of greater value, than the whole quantity of butcher’s meat; the whole quantity of
butcher’s meat, than the whole quantity of poultry; and the whole quantity of poultry,
than the whole quantity of wild fowl. There are so many more purchasers for the cheap
~ than for the dear commodity, that, not only a greater quantity of it, but a greater value
can commonly be disposed of. The whole quantity, therefore, of the cheap commodity,
must commonly be greater in proportion to the whole quantity of the dear one, than
the value of a certain quantity of the dear one, is to the value of an equal quantity of
the cheap one. When we compare the precious metals with one another, silver is a
cheap, and gold a dear commodity. We ought naturally to expect, therefore, that there
should always be in the market, not only a greater quantity, but a greater value of silver
than of gold. Let any man, who has a little of both, compare his own silver with his
gold plate, and he will probably find, that not only the quantity, but the value of the
former, greatly exceeds that of the latter. Many people, besides, have a good deal of
silver who have no gold plate, which, even with those who have it, is generally confined
to watch-cases, snuff-boxes, and such like trinkets, of which the whole amount is
seldom of great value. In the British coin, indeed, the value of the gold preponderates
greatly, but it is not so in that of all countries. In the coin of some countries, the value
of the two metals is nearly equal. In the Scotch coin, before the union with England,

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the gold preponderated very little, though it did somewhat {See Ruddiman’s Preface
to Anderson’s Diplomata, etc. Scotiae.}, as it appears by the accounts of the mint. In
the coin of many countries the silver preponderates. In France, the largest sums are
commonly paid in that metal, and it is there difficult to get more gold than what is
necessaty to carry about in your pocket. The superior value, however, of the silver
plate above that of the gold, which takes place in all countries, will much more than
compensate the preponderancy of the gold coin above the silver, which takes place
only in some countries.

Though, in one sense of the word, silver always has been, and probably always will
be, much cheaper than gold; yet, in another sense, gold may perhaps, in the present state
of the Spanish market, be said to be somewhat cheaper than silver. A commodity may
be said to be dear or cheap not only according to the absolute greatness or smallness of
its usual price, but according as that price is more or less above the lowest for which it
is possible to bring it to market for any considerable time together. This lowest price is
that which barely replaces, with a moderate profit, the stock which must be employed
in bringing the commodity thither. It is the price which affords nothing to the landlord,
of which rent makes not any component part, but which resolves itself altogether
into wages and profit. But, in the present state of the Spanish market, gold is certainly
somewhat nearer to this lowest price than silver. The tax of the king of Spain upon
gold is only one-twentieth part of the standard metal, or five per cent.; whereas his tax
upon silver amounts to one-tenth part of it, or to ten per cent. In these taxes, too, it has
already been observed, consists the whole rent of the greater part of the gold and silver
mines of Spanish America; and that upon gold is still worse paid than that upon silver.
The profits of the undertakers of gold mines, too, as they more rarely make a fortune,
must, in general, be still more moderate than those of the undertakers of silver mines.
The price of Spanish gold, therefore, as it affords both less rent and less profit, must,
in the Spanish market, be somewhat nearer to the lowest price for which it is possible
to bring it thither, than the price of Spanish silver. When all expenses are computed,
the whole quantity of the one metal, it would seem, cannot, in the Spanish market, be
disposed of so advantageously as the whole quantity of the other. The tax, indeed, of
the king of Portugal upon the gold of the Brazils, is the same with the ancient tax of
the king of Spain upon the silver of Mexico and Peru; or one-fifth part of the standard
metal. It may therefore be uncertain, whether, to the general market of Europe, the
whole mass of American gold comes at a price nearer to the lowest for which it is
possible to bring it thither, than the whole mass of American silver.

The price of diamonds and other precious stones may, perhaps, be still nearer to
the lowest price at which it is possible to bring them to market, than even the price of
gold.

Though it is not very probable that any part of a tax, which is not only imposed
upon one of the most proper subjects of taxation, a mere luxury and superfluity, but
which affords so very important a revenue as the tax upon silver, will ever be given
up as long as it is possible to pay it; yet the same impossibility of paying it, which, in

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1736. made it necessary to reduce it from one-fifth to one-tenth, may in time make
it necessary to reduce it still further; in the same manner as it made it necessary to
reduce the tax upon gold to one-twentieth. That the silver mines of Spanish America,
like all other mines, become gradually more expensive in the working, on account of
the greater depths at which it is necessary to carry on the works, and of the greater
expense of drawing out the water, and of supplying them with fresh air at those depths,
is acknowledged by everybody who has inquired into the state of those mines.

These causes, which are equivalent to a growing scarcity of silver (for a commodity
may be said to grow scarcer when it becomes more difficult and expensive to collect
a certain quantity of it), must, in time, produce one or other of the three following
events: The increase of the expense must either, first, be compensated altogether by a
proportionable increase in the price of the metal; or, secondly, it must be compensated
altogether by a proportionable diminution of the tax upon silver; or, thirdly, it must
be compensated partly by the one and partly by the other of those two expedients.
This third event is very possible. As gold rose in its price in proportion to silver,
notwithstanding a great diminution of the tax upon gold, so silver might rise in its
price in proportion to labour and commodities, notwithstanding an equal diminution
of the tax upon silver.

Such successive reductions of the tax, however, though they may not prevent
altogether, must certainly retard, more or less, the rise of the value of silver in the
European market. In consequence of such reductions, many mines may be wrought
which could not be wrought before, because they could not afford to pay the old
tax; and the quantity of silver annually brought to market, must always be somewhat
greater, and, therefore, the value of any given quantity somewhat less, than it otherwise
would have been. In consequence of the reduction in 1736, the value of silver in the
European market, though it may not at this day be lower than before that reduction,
is, probably, at least ten per cent. lower than it would have been, had the court of

‘Spain continued to exact the old tax. That, notwithstanding this reduction, the value
of silver has, during the course of the present century, begun to rise somewhat in the
European market, the facts and arguments which have been alleged above, dispose
me to believe, or more properly to suspect and conjecture; for the best opinion which
I can form upon this subject, scarce, perhaps, deserves the name of belief. The rise,
indeed, supposing there has been any, has hitherto been so very small, that after all that
has been said, it may, perhaps, appear to many people uncertain, not only whether this
event has actually taken place, but whether the contrary may not have taken place, or
whether the value of silver may not still continue to fall in the European market.

It must be observed, however, that whatever may be the supposed annual importation
of gold and silver, there must be a certain period at which the annual consumption of
those metals will be equal to that annual importation. Their consumption must increase
as their mass increases, or rather in a much greater proportion. As their mass increases,
their value diminishes. They are more used, and less cared for, and their consumption
consequently increases in a greater proportion than their mass. After a certain period,

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therefore, the annual consumption of those metals must, in this manner, become equal
to their annual importation, provided that importation is not continually increasing;
which, in the present times, is not supposed to be the case.

If, when the annual consumption has become equal to the annual importation,
the annual importation should gradually diminish, the annual consumption may, for
some time, exceed the annual importation. The mass of those metals may gradually
and insensibly diminish, and their value gradually and insensibly rise, till the annual
importation becoming again stationary, the annual consumption will gradually and
insensibly accommodate itself to what that annual importation can maintain.

Grounds of the suspicion that the Value of Silver still continues to decrease.

The increase of the wealth of Europe, and the popular notion, that as the quantity
of the precious metals naturally increases with the increase of wealth, so their value
diminishes as their quantity increases, may, perhaps, dispose many people to believe
that their value still continues to fall in the European market; and the still gradually
increasing price of many parts of the rude produce of land may confirm them still
farther in this opinion.

That that increase in the quantity of the precious metals, which arises in any
country from the increase of wealth, has no tendency to diminish their value, I have
endeavoured to shew already. Gold and silver naturally resort to a rich country, for the
same reason that all sorts of luxuries and curiosities resort to it; not because they are
cheaper there than in poorer countries, but because they are dearer, or because a better
price is given for them. It is the superiority of price which attracts them; and as soon
as that superiority ceases, they necessarily cease to go thither.

If you except corn, and such other vegetables as are raised altogether by human
industry, that all other sorts of rude produce, cattle, poultry, game of all kinds, the
useful fossils and minerals of the earth, etc. naturally grow dearer, as the society
advances in wealth and improvement, I have endeavoured to shew already. Though
such commodities, therefore, come to exchange for a greater quantity of silver than
before, it will not from thence follow that silver has become really cheaper, or will
purchase less labour than before; but that such commodities have become really dearer,
or will purchase more labour than before. It is not their nominal price only, but their
real price, which rises in the progress of improvement. The rise of their nominal price
is the effect, not of any degradation of the value of silver, but of the rise in their real
price.

Different Effects of the Progress of Improvement upon three different sorts of
rude Produce.

These different sorts of rude produce may be divided into three classes. The fitst
comprehends those which it is scarce in the power of human industry to multiply at all.
The second, those which it can multiply in proportion to the demand. The third, those
in which the efficacy of industry is either limited or uncertain. In the progress of wealth
and improvement, the real price of the first may rise to any degree of extravagance,
and seems not to be limited by any certain boundary. That of the second, though it

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may tise greatly, has, however, a certain boundary, beyond which it cannot well pass
for any considerable time together. That of the third, though its natural tendency is to
rise in the progress of improvement, yet in the same degree of improvement it may
sometimes happen even to fall, sometimes to continue the same, and sometimes to rise
mote or less, according as different accidents render the efforts of human industry, in
multiplying this sort of rude produce, more or less successful.

First Sort.—The first sort of rude produce, of which the price rises in the progress
of improvement, is that which it is scarce in the power of human industry to multiply
at all. It consists in those things which nature produces only in certain quantities, and
which being of a very perishable nature, it is impossible to accumulate together the
produce of many different seasons. Such are the greater part of rare and singular birds
and fishes, many different sorts of game, almost all wild-fowl, all birds of passage in
particular, as well as many other things. When wealth, and the luxury which accompanies
it, increase, the demand for these is likely to increase with them, and no effort of
human industry may be able to increase the supply much beyond what it was before
this increase of the demand. The quantity of such commodities, therefore, remaining
the same, or nearly the same, while the competition to purchase them is continually
increasing, their price may rise to any degree of extravagance, and seems not to be
limited by any certain boundary. If woodcocks should become so fashionable as to
sell for twenty guineas a-piece, no effort of human industry could increase the number
of those brought to market, much beyond what it is at present. The high price paid
by the Romans, in the time of their greatest grandeur, for rare birds and fishes, may
in this manner easily be accounted for. These prices were not the effects of the low
value of silver in those times, but of the high value of such rarities and curiosities as
human industry could not multiply at pleasure. The real value of silver was higher at
Rome, for sometime before, and after the fall of the republic, than it is through the
greater part of Europe at present. Three sestertii equal to about sixpence sterling, was
~ the price which the republic paid for the modius or peck of the tithe wheat of Sicily.
This price, however, was probably below the average market price, the obligation to
deliver their wheat at this rate being considered as a tax upon the Sicilian farmers.
When the Romans, therefore, had occasion to order more corn than the tithe of wheat
amounted to, they were bound by capitulation to pay for the surplus at the rate of
four sestertii, or eightpence sterling the peck; and this had probably been reckoned the
moderate and reasonable, that is, the ordinary or average contract price of those times;
it is equal to about one-and-twenty shillings the quarter. Eight-and-twenty shillings the
quarter was, before the late years of scarcity, the ordinary contract price of English
wheat, which in quality is inferior to the Sicilian, and generally sells for a lower price
in the European market. The value of silver, therefore, in those ancient times, must
have been to its value in the present, as three to four inversely; that is, three ounces of
silver would then have purchased the same quantity of labour and commodities which
four ounces will do at present. When we read in Pliny, therefore, that Seius {Lib. X, c.
29.} bought a white nightingale, as a present for the empress Agrippina, at the price

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of six thousand sestertii, equal to about fifty pounds of our present money; and that
Asinius Celer {Lib. IX, c. 17.} purchased a surmullet at the price of eight thousand
sestertii, equal to about sixty-six pounds thirteen shillings and fourpence of our present
money; the extravagance of those prices, how much soever it may surprise us, is apt,
notwithstanding, to appear to us about one third less than it really was. Their real price,
the quantity of labour and subsistence which was given away for them, was about one-
third more than their nominal price is apt to express to us in the present times. Seius
gave for the nightingale the command of a quantity of labour and subsistence, equal
to what £ 66:13: 4d. would purchase in the present times; and Asinius Celer gave for a
surmullet the command of a quantity equal to what £ 88:17: 9d. would purchase. What
occasioned the extravagance of those high prices was, not so much the abundance
of silver, as the abundance of labour and subsistence, of which those Romans had
the disposal, beyond what was necessary for their own use. The quantity of silver, of
which they had the disposal, was a good deal less than what the command of the same
quantity of labour and subsistence would have procured to them in the present times.

Second sort—The second sort of rude produce, of which the price rises in the
progress of improvement, is that which human industry can multiply in proportion
to the demand. It consists in those useful plants and animals, which, in uncultivated
countries, nature produces with such profuse abundance, that they are of little or no
value, and which, as culttvation advances, are therefore forced to give place to some
more profitable produce. During a long period in the progress of improvement, the
quantity of these is continually diminishing, while, at the same time, the demand for
them is continually increasing. Their real value, therefore, the real quantity of labour
which they will purchase or command, gradually rises, till at last it gets so high as to
render them as profitable a produce as any thing else which human industry can raise
upon the most fertile and best cultivated land. When it has got so high, it cannot well
go higher. If it did, more land and more industry would soon be employed to increase
their quantity.

When the price of cattle, for example, rises so high, that it is as profitable to
cultivate land in order to raise food for them as in order to raise food for man, it
cannot well go higher. If it did, more corn land would soon be turned into pasture.
The extension of tillage, by diminishing the quantity of wild pasture, diminishes the
quantity of butcher’s meat, which the country naturally produces without labour or
cultivation; and, by increasing the number of those who have either corn, or, what
comes to the same thing, the price of corn, to give in exchange for it, increases the
demand. The price of butcher’s meat, therefore, and, consequently, of cattle, must
gradually rise, till it gets so high, that it becomes as profitable to employ the most fertile
and best cultivated lands in raising food for them as in raising corn. But it must always
be late in the progress of improvement before tillage can be so far extended as to
raise the price of cattle to this height; and, till it has got to this height, if the country is
advancing at all, their price must be continually rising. There are, perhaps, some parts
of Europe in which the price of cattle has not yet got to this height. It had not got to

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this height in any part of Scotland before the Union. Had the Scotch cattle been always
confined to the market of Scotland, in a country in which the quantity of land, which
can be applied to no other purpose but the feeding of cattle, is so great in proportion
to what can be applied to other purposes, it is scarce possible, perhaps, that their price
could ever have risen so high as to render it profitable to cultivate land for the sake of
feeding them. In England, the price of cattle, it has already been observed, seems, in
the neighbourhood of London, to have got to this height about the beginning of the
last century; but it was much later, probably, before it got through the greater part of
the remoter counties, in some of which, perhaps, it may scarce yet have got to it. Of all
the different substances, however, which compose this second sort of rude produce,
cattle is, perhaps, that of which the price, in the progress of improvement, rises first
to this height.

Till the price of cattle, indeed, has got to this height, it seems scarce possible that
the greater part, even of those lands which ate capable of the highest cultivation, can
be completely cultivated. In all farms too distant from any town to carry manure from
it, that is, in the far greater part of those of every extensive country, the quantity of
well cultivated land must be in proportion to the quantity of manure which the farm
itself produces; and this, again, must be in proportion to the stock of cattle which are
maintained upon it. The land is manured, either by pasturing the cattle upon it, or by
feeding them in the stable, and from thence carrying out their dung to it. But unless the
price of the cattle be sufficient to pay both the rent and profit of cultivated land, the
farmer cannot afford to pasture them upon it; and he can still less afford to feed them
in the stable. It is with the produce of improved and cultivated land only that cattle
can be fed in the stable; because, to collect the scanty and scattered produce of waste
and unimproved lands, would require too much labour, and be too expensive. It the
price of the cattle, therefore, is not sufficient to pay for the produce of improved and
cuitivated land, when they are allowed to pasture it, that price will be still less sufficient
to pay for that produce, when it must be collected with a good deal of additional
labour, and brought into the stable to them. In these circumstances, therefore, no more
cattle can with profit be fed in the stable than what are necessary for tillage. But these
can never afford manure enough for keeping constantly in good condition all the lands
which they are capable of cultivating. What they afford, being insufficient for the whole
farm, will naturally be reserved for the lands to which it can be most advantageously
or conveniently applied; the most fertile, or those, perhaps, in the neighbourhood of
the farm-yard. These, therefore, will be kept constantly in good condition, and fit for
tillage. The rest will, the greater part of them, be allowed to lie waste, producing scarce
any thing but some miserable pasture, just sufficient to keep alive a few straggling,
half-starved cattle; the farm, though much overstocked in proportion to what would be
necessary for its complete cultivation, being very frequently overstocked in proportion
to its actual produce. A portion of this waste land, however, after having been pastured
in this wretched manner for six or seven years together, may be ploughed up, when
it will yield, perhaps, a poor crop or two of bad oats, or of some other coarse grain;

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and then, being entirely exhausted, it must be rested and pastured again as before, and
another portion ploughed up, to be in the same manner exhausted and rested again
in its turn. Such, accordingly, was the general system of management all over the low
country of Scotland before the Union. The lands which were kept constantly well
manured and in good condition seldom exceeded a third or fourth part of the whole
farm, and sometimes did not amount to a fifth or a sixth part of it. The rest were never
manured, but a certain portion of them was in its turn, notwithstanding, regularly
cultivated and exhausted. Under this system of management, it is evident, even that
part of the lands of Scotland which is capable of good cultivation, could produce but
little in comparison of what it may be capable of producing. But how disadvantageous
soever this system may appear, yet, before the Union, the low price of cattle seems to
have rendered it almost unavoidable. If, notwithstanding a great rise in the price, it still
continues to prevail through a considerable part of the country, it is owing in many
places, no doubt, to ignorance and attachment to old customs, but, in most places, to the
unavoidable obstructions which the natural course of things opposes to the immediate
or speedy establishment of a better system: first, to the poverty of the tenants, to their
not having yet had time to acquire a stock of cattle sufficient to cultivate their lands
more completely, the same rise of price, which would render it advantageous for them
to maintain a greater stock, rendering it more difficult for them to acquire it; and,
secondly, to their not having yet had time to put their lands in condition to maintain
this greater stock properly, supposing they were capable of acquiring it. The increase of
stock and the improvement of land are two events which must go hand in hand, and of
which the one can nowhere much outrun the other. Without some increase of stock,
there can be scarce any improvement of land, but there can be no considerable increase
of stock, but in consequence of a considerable improvement of land; because otherwise
the land could not maintain it. These natural obstructions to the establishment of a
better system, cannot be removed but by a long course of frugality and industry; and
half a century or a century more, perhaps, must pass away before the old system, which
is wearing out gradually, can be completely abolished through all the different parts of
the country. Of all the commercial advantages, however, which Scotland has derived
from the Union with England, this rise in the price of cattle is, perhaps, the greatest.
It has not only raised the value of all highland estates, but it has, perhaps, been the
principal cause of the improvement of the low country.

In all new colonies, the great quantity of waste land, which can for many years be
applied to no other purpose but the feeding of cattle, soon renders them extremely
abundant; and in every thing great cheapness is the necessary consequence of great
abundance. Though all the cattle of the European colonies in America were originally
carried from Europe, they soon multiplied so much there, and became of so little value,
that even horses were allowed to run wild in the woods, without any owner thinking it
worth while to claim them. It must be a long time after the first establishment of such
colonies, before it can become profitable to feed cattle upon the produce of cultivated
land. The same causes, therefore, the want of manure, and the disproportion between

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the stock employed in cultivation and the land which it is destined to cultivate, are
likely to introduce there a system of husbandry, not unlike that which still continues
to take place in so many parts of Scotland. Mr Kalm, the Swedish traveller, when he
gives an account of the husbandry of some of the English colonies in North America,
as he found it in 1749, observes, accordingly, that he can with difficulty discover there
the character of the English nation, so well skilled in all the different branches of
agriculture. They make scarce any manure for their corn fields, he says; but when one
piece of ground has been exhausted by continual cropping, they clear and cultivate
another piece of fresh land; and when that is exhausted, proceed to a third. Their cattle
are allowed to wander through the woods and other uncultivated grounds, where they
are half-starved; having long ago extirpated almost all the annual grasses, by cropping
them too early in the spring, before they had time to form their flowers, or to shed
their seeds. {Kalm’s Travels, vol 1, pp. 343, 344.} The annual grasses were, it seems,
the best natural grasses in that part of North America; and when the Europeans first
settled there, they used to grow very thick, and to rise three or four feet high. A piece
of ground which, when he wrote, could not maintain one cow, would in former times,
he was assured, have maintained four, each of which would have given four times the
quantity of milk which that one was capable of giving. The poorness of the pasture
had, in his opinion, occasioned the degradation of their cattle, which degenerated
sensibly from me generation to another. They were probably not unlike that stunted
breed which was common all over Scotland thirty or forty years ago, and which is now
so much mended through the greater part of the low country, not so much by a change
of the breed, though that expedient has been employed in some places, as by a more
plentiful method of feeding them.

Though it is late, therefore, in the progress of improvement, before cattle can bring
such a price as to render it profitable to cultivate land for the sake of feeding them; yet
of all the different parts which compose this second sort of rude produce, they are

‘perhaps the first which bring this price; because, till they bring it, it seems impossible
that improvement can be brought near even to that degree of perfection to which it has
arrived in many parts of Europe.

As cattle are among the first, so perhaps venison is among the last parts of this sort
of rude produce which bring this price. The price of venison in Great Britain, how
extravagant soever it may appear, is not near sufficient to compensate the expense of
a deer park, as is well known to all those who have had any experience in the feeding
of deer. If it was otherwise, the feeding of deer would soon become an article of
common farming, in the same manner as the feeding of those small birds, called turdi,
was among the ancient Romans. Varro and Columella assure us, that it was a most
profitable article. The fattening of ortolans, birds of passage which arrive lean in the
country, is said to be so in some parts of France. If venison continues in fashion, and
the wealth and luxury of Great Britain increase as they have done for some time past,
its price may very probably rise still higher than it is at present.

Between that period in the progress of improvement, which brings to its height the

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price of so necessary an article as cattle, and that which brings to it the price of such a
supetfluity as venison, there is a very long interval, in the course of which many other
sorts of rude produce gradually arrive at their highest price, some sooner and some
later, according to different circumstances.

Thus, in every farm, the offals of the barn and stable will maintain a certain number
of poultry. These, as they are fed with what would otherwise be lost, are a mere save-all;
and as they cost the farmer scarce any thing, so he can afford to sell them for very little.
Almost all that he gets is pure gain, and their price can scarce be so low as to discourage
him from feeding this number. But in countries ill cultivated, and therefore but thinly
inhabited, the poultry, which are thus raised without expense, are often fully sufficient
to supply the whole demand. In this state of things, therefore, they are often as cheap
as butcher’s meat, or any other sort of animal food. But the whole quantity of poultry
which the farm in this manner produces without expense, must always be much smaller
than the whole quantity of butcher’s meat which is reared upon it; and in times of
wealth and luxury, what is rare, with only nearly equal merit, is always preferred to what
is common. As wealth and luxury increase, therefore, in consequence of improvement
and cultivation, the price of poultry gradually rises above that of butcher’s meat, till at
last it gets so high, that it becomes profitable to cultivate land for the sake of feeding
them. When it has got to this height, it cannot well go higher. If it did, more land would
soon be turned to this purpose. In several provinces of France, the feeding of poultry
is considered as a very important article in rural economy, and sufficiently profitable to
encourage the farmer to raise a considerable quantity of Indian corn and buckwheat
for this purpose. A middling farmer will there sometimes have four hundred fowls in
his yard. The feeding of poultry seems scarce yet to be generally considered as a matter
of so much importance in England. They are certainly, however, dearer in England
than in France, as England receives considerable supplies from France. In the progress
of improvements, the period at which every particular sort of animal food is dearest,
must naturally be that which immediately precedes the general practice of cultivating
land for the sake of raising it. For some time before this practice becomes general, the
scarcity must necessarily raise the price. After it has become general, new methods of
feeding are commonly fallen upon, which enable the farmer to raise upon the same
quantity of ground a much greater quantity of that particular sort of animal food. The
plenty not only obliges him to sell cheaper, but, in consequence of these improvements,
he can afford to sell cheaper; for if he could not afford it, the plenty would not be of
long continuance. It has been probably in this manner that the introduction of clover,
turnips, carrots, cabbages, etc. has contributed to sink the common price of butchet’s
meat in the London market, somewhat below what it was about the beginning of the
last century.

The hog, that finds his food among ordure, and greedily devours many things
rejected by every other useful animal, is, like poultry, originally kept as a save-all. As
long as the number of such animals, which can thus be reared at little or no expense,
is fully sufficient to supply the demand, this sort of butcher’s meat comes to market

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at a much lower price than any other. But when the demand rises beyond what this
quantity can supply, when it becomes necessary to raise food on purpose for feeding
and fattening hogs, in the same manner as for feeding and fattening other cattle, the
price necessarily rises, and becomes proportionably either higher or lower than that
of other butcher’s meat, according as the nature of the country, and the state of its
agriculture, happen to render the feeding of hogs more or less expensive than that of
other cattle. In France, according to Mr Buffon, the price of pork is nearly equal to that
of beef. In most parts of Great Britain it is at present somewhat higher.

The great rise in the price both of hogs and poultry, has, in Great Britain, been
frequently imputed to the diminution of the number of cottagers and other small
occupiers of land; an event which has in every part of Europe been the immediate
forerunner of improvement and better cultivation, but which at the same time may have
contributed to raise the price of those articles, both somewhat sooner and somewhat
faster than it would otherwise have risen. As the poorest family can often maintain a cat
or a dog without any expense, so the poorest occupiers of land can commonly maintain
a few poultry, or a sow and a few pigs, at very little. The little offals of their own table,
their whey, skimmed milk, and butter milk, supply those animals with a part of their
food, and they find the rest in the neighbouring fields, without doing any sensible
damage to any body. By diminishing the number of those small occupiers, therefore,
the quantity of this sort of provisions, which is thus produced at little or no expense,
must certainly have been a good deal diminished, and their price must consequently
have been raised both sooner and faster than it would otherwise have risen. Sooner or
later, however, in the progress of improvement, it must at any rate have risen to the
utmost height to which it is capable of rising; or to the price which pays the labour and
expense of cultivating the land which furnishes them with food, as well as these are
paid upon the greater part of other cultivated land.

The business of the dairy, like the feeding of hogs and poultry, is originally carried

“on as a save-all. The cattle necessarily kept upon the farm produce more milk than either
the rearing of their own young, or the consumption of the farmer’s family requires; and
they produce most at one particular season. But of all the productions of land, milk
is perhaps the most perishable. In the warm season, when it is most abundant, it will
scarce keep four-and-twenty hours. The farmer, by making it into fresh butter, stores a
small part of it for a week; by making it into salt butter, for a year; and by making it into
cheese, he stores a much greater part of it for several years. Part of all these is reserved
for the use of his own family; the rest goes to market, in order to find the best price
which is to be had, and which can scarce be so low is to discourage him from sending
thither whatever is over and above the use of his own family. If it is very low indeed,
he will be likely to manage his dairy in a very slovenly and dirty manner, and will scarce,
perhaps, think it worth while to have a particular room or building on purpose for it,
but will suffer the business to be carried on amidst the smoke, filth, and nastiness of his
own kitchen, as was the case of almost all the farmers’ dairies in Scotland thirty or forty
years ago, and as is the case of many of them still. The same causes which gradually

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raise the price of butcher’s meat, the increase of the demand, and, in consequence of
the improvement of the country, the diminution of the quantity which can be fed at
little or no expense, raise, in the same manner, that of the produce of the dairy, of
which the price naturally connects with that of butcher’s meat, or with the expense of
feeding cattle. The increase of price pays for more labour, care, and cleanliness. The
dairy becomes more worthy of the farmer’s attention, and the quality of its produce
gtadually improves. The price at last gets so high, that it becomes worth while to employ
some of the most fertile and best cultivated lands in feeding cattle merely for the
purpose of the dairy; and when it has got to this height, it cannot well go higher. If it
did, more land would soon be turned to this purpose. It seems to have got to this height
through the greater part of England, where much good land is commonly employed in
this manner. If you except the neighbourhood of a few considerable towns, it seems
not yet to have got to this height anywhere in Scotland, where common farmers seldom
employ much good land in raising food for cattle, merely for the purpose of the dairy.
The price of the produce, though it has risen very considerably within these few years,
is probably still too low to admit of it. The inferiority of the quality, indeed, compared
with that of the produce of English dairies, is fully equal to that of the price. But this
inferiority of quality is, perhaps, rather the effect of this lowness of price, than the
cause of it. Though the quality was much better, the greater part of what is brought
to market could not, I apprehend, in the present circumstances of the country, be
disposed of at a much better price; and the present price, it is probable, would not
pay the expense of the land and labour necessary for producing a much better quality.
Through the greater part of England, notwithstanding the superiority of price, the
dairy is not reckoned a more profitable employment of land than the raising of corn,
or the fattening of cattle, the two great objects of agriculture. Through the greater part
of Scotland, therefore, it cannot yet be even so profitable.

The lands of no country, it is evident, can ever be completely cultivated and
improved, till once the price of every produce, which human industry is obliged to
raise upon them, has got so high as to pay for the expense of complete improvement
and cultivation. In order to do this, the price of each particular produce must be
sufficient, first, to pay the rent of good corn land, as it is that which regulates the
rent of the greater part of other cultivated land; and, secondly, to pay the labour and
expense of the farmer, as well as they are commonly paid upon good corn land; or,
in other words, to replace with the ordinary profits the stock which he employs about
it. This rise in the price of each particular produce; must evidently be previous to the
improvement and cultivation of the land which is destined for raising it. Gain is the
end of all improvement; and nothing could deserve that name, of which loss was to be
the necessary consequence. But loss must be the necessary consequence of improving
land for the sake of a produce of which the price could never bring back the expense.
If the complete improvement and cultivation of the country be, as it most certainly ts,
the greatest of all public advantages, this rise in the price of all those different sorts of
rude produce, instead of being considered as a public calamity, ought to be regarded as

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the necessary forerunner and attendant of the greatest of all public advantages.

This rise, too, in the nominal or money price of all those different sorts of rude
produce, has been the effect, not of any degradation in the value of silver, but of a rise
in their real price. They have become worth, not only a greater quantity of silver, but a
greater quantity of labour and subsistence than before. As it costs a greater quantity of
labour and subsistence to bring them to market, so, when they are brought thither they
represent, or are equivalent to a greater quantity.

Third Sort—The third and last sort of rude produce, of which the price naturally
rises in the progress of improvement, is that in which the efficacy of human industry,
in augmenting the quantity, is either limited or uncertain. Though the real price of this
sort of rude produce, therefore, naturally tends to rise in the progress of improvement,
yet, according as different accidents happen to render the efforts of human industry
more orf less successful in augmenting the quantity, it may happen sometimes even to
fall, sometimes to continue the same, in very different periods of improvement, and
sometimes to rise more or less in the same period.

There are some sorts of rude produce which nature has rendered a kind of
appendages to other sorts; so that the quantity of the one which any country can
afford, is necessarily limited by that of the other. The quantity of wool or of raw hides,
for example, which any country can afford, is necessarily limited by the number of
great and small cattle that are kept in it. The state of its improvement, and the nature
of its agriculture, again necessarily determine this number.

The same causes which, in the progress of improvement, gradually raise the price
of butcher’s meat, should have the same effect, it may be thought, upon the prices of
wool and raw hides, and raise them, too, nearly in the same proportion. It probably
would be so, if, in the rude beginnings of improvement, the market for the latter
commodities was confined within as narrow bounds as that for the former. But the
extent of their respective markets is commonly extremely different.

The market for butcher’s meat is almost everywhere confined to the country which
produces it. Ireland, and some part of British America, indeed, carry ona considerable
trade in salt provisions; but they are, I believe, the only countries in the commercial
world which do so, or which export to other countries any considerable part of their
butcher’s meat.

The market for wool and raw hides, on the contrary, is, in the rude beginnings of
improvement, very seldom confined to the country which produces them. They can
easily be transported to distant countries; wool without any preparation, and raw hides
with very little; and as they are the materials of many manufactures, the industry of
other countries may occasion a demand for them, though that of the country which
produces them might not occasion any.

In countries ill cultivated, and therefore but thinly inhabited, the price of the wool
and the hide bears always a much greater proportion to that of the whole beast, than
in countries where, improvement and population being further advanced, there is more
demand for butcher’s meat. Mr Hume observes, that in the Saxon times, the fleece was

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estimated at two-fifths of the value of the whole sheep and that this was much above
the proportion of its present estimation. In some provinces of Spain, I have been
assured, the sheep is frequently killed merely for the sake of the fleece and the tallow.
The carcase is often left to rot upon the ground, or to be devoured by beasts and birds
of prey. If this sometimes happens even in Spain, it happens almost constantly in Chili,
at Buenos Ayres, and in many other parts of Spanish America, where the horned cattle
are almost constantly killed merely for the sake of the hide and the tallow. This, too,
used to happen almost constantly in Hispaniola, while it was infested by the buccaneers,
and before the settlement, improvement, and populousness of the French plantations (
which now extend round the coast of almost the whole western half of the island) had
given some value to the cattle of the Spaniards, who still continue to possess, not only
the eastern part of the coast, but the whole inland mountainous part of the country.

Though, in the progress of improvement and population, the price of the whole
beast necessarily rises, yet the price of the carcase is likely to be much more affected
by this rise than that of the wool and the hide. The market for the carcase being in the
rude state of society confined always to the country which produces it, must necessarily
be extended in proportion to the improvement and population of that country. But the
market for the wool and the hides, even of a barbarous country, often extending to the
whole commercial world, it can very seldom be enlarged in the same proportion. The
state of the whole commercial world can seldom be much affected by the improvement
of any particular country; and the market for such commodities may remain the same,
or very nearly the same, after such improvements, as before. It should, however, in the
natural course of things, rather, upon the whole, be somewhat extended in consequence
of them. If the manufactures, especially, of which those commodities are the materials,
should ever come to flourish in the country, the market, though it might not be much
enlarged, would at least be brought much nearer to the place of growth than before;
and the price of those materials might at least be increased by what had usually been the
expense of transporting them to distant countries. Though it might not rise, therefore,
in the same proportion as that of butcher’s meat, it ought naturally to rise somewhat,
and it ought certainly not to fall.

In England, however, notwithstanding the flourishing state of its woollen
manufacture, the price of English wool has fallen very considerably since the time of
Edward III. There are many authentic records which demonstrate that, during the reign
of that prince (towards the middle of the fourteenth century, or about 1339), what was
reckoned the moderate and reasonable price of the tod, or twenty-eight pounds of
English wool, was not less than ten shillings of the money of those times {See Smith’s
Memoirs of Wool, vol. ic. 5, 6, 7. also vol. ii}, containing, at the rate of twenty-pence
the ounce, six ounces of silver, Tower weight, equal to about thirty shillings of our
present money. In the present times, one-and-twenty shillings the tod may be reckoned
a good price for very good English wool. The money price of wool, therefore, in the
time of Edward IL. was to its money price in the present times as ten to seven. The
superiority of its real price was still greater. At the rate of six shillings and eightpence

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the quarter, ten shillings was in those ancient times the price of twelve bushels of
wheat. At the rate of twenty-eight shillings the quarter, one-and-twenty shillings is in
the present times the price of six bushels only. The proportion between the real price
of ancient and modern times, therefore, is as twelve to six, or as two to one. In those
ancient times, a tod of wool would have purchased twice the quantity of subsistence
which it will purchase at present, and consequently twice the quantity of labour, if the
real recompence of labour had been the same in both periods.

This degradation, both in the real and nominal value of wool, could never have
happened in consequence of the natural course of things. It has accordingly been
the effect of violence and artifice. First, of the absolute prohibition of exporting
wool from England: secondly, of the permission of importing it from Spain, duty
free: thirdly, of the prohibition of exporting it from Ireland to another country but
England. In consequence of these regulations, the market for English wool, instead of
being somewhat extended, in consequence of the improvement of England, has been
confined to the home market, where the wool of several other countries is allowed to
come into competition with it, and where that of Ireland is forced into competition
with it. As the woollen manufactures, too, of Ireland, are fully as much discouraged as
is consistent with justice and fair dealing, the Irish can work up but a smaller part of
their own wool at home, and are therefore obliged to send a greater proportion of it to
Great Britain, the only market they are allowed.

I have not been able to find any such authentic records concerning the price of
raw hides in ancient times. Wool was commonly paid as a subsidy to the king, and its
valuation in that subsidy ascertains, at least in some degree, what was its ordinary price.
But this seems not to have been the case with raw hides. Fleetwood, however, from an
account in 1425, between the prior of Burcester Oxford and one of his canons, gives
us their price, at least as it was stated upon that particular occasion, viz. five ox hides
at twelve shillings; frve cow hides at seven shillings and threepence; thirtysix sheep
‘skins of two years old at nine shillings; sixteen calf skins at two shillings. In 1425,
twelve shillings contained about the same quantity of silver as four-and-twenty shillings
of our present money. An ox hide, therefore, was in this account valued at the same
quantity of silver as 4s. 4/5ths of our present money. Its nominal price was a good deal
lower than at present. But at the rate of six shillings and eightpence the quarter, twelve
shillings would in those times have purchased fourteen bushels and four-fifths of a
bushel of wheat, which, at three and sixpence the bushel, would in the present times
cost 51s. 4d. An ox hide, therefore, would in those times have purchased as much corn
as ten shillings and threepence would purchase at present. Its real value was equal to ten
shillings and threepence of our present money. In those ancient times, when the cattle
were half starved during the greater part of the winter, we cannot suppose that they
were of a very large size. An ox hide which weighs four stone of sixteen pounds of
avoirdupois, is not in the present times reckoned a bad one; and in those ancient times
would probably have been reckoned a very good one. But at half-a-crown the stone,
which at this moment (February 1773) I understand to be the common price, such a

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hide would at present cost only ten shillings. Through its nominal price, therefore, is
higher in the present than it was in those ancient times, its real price, the real quantity of
subsistence which it will purchase or command, is rather somewhat lower. The price of
cow hides, as stated in the above account, is nearly in the common proportion to that
of ox hides. That of sheep skins is a good deal above it. They had probably been sold
with the wool. That of calves skins, on the contrary, is greatly below it. In countries
where the price of cattle is very low, the calves, which are not intended to be reared in
order to keep up the stock, are generally killed very young, as was the case in Scotland
twenty or thirty years ago. It saves the milk, which their price would not pay for. Their
skins, therefore, are commonly good for little.

The price of raw hides is a good deal lower at present than it was a few years ago;
owing probably to the taking off the duty upon seal skins, and to the allowing, for a
limited time, the importation of raw hides from Ireland, and from the plantations, duty
free, which was done in 1769. Take the whole of the present century at an average, their
real price has probably been somewhat higher than it was in those ancient times. The
nature of the commodity renders it not quite so proper for being transported to distant
markets as wool. It suffers more by keeping. A salted hide is reckoned inferior to a fresh
one, and sells for a lower price. This circumstance must necessarily have some tendency
to sink the price of raw hides produced in a country which does not manufacture them,
but is obliged to export them, and comparatively to raise that of those produced in a
country which does manufacture them. It must have some tendency to sink their price
in a barbarous, and to raise it in an improved and manufacturing country. It must have
had some tendency, therefore, to sink it in ancient, and to raise it in modern times.
Our tanners, besides, have not been quite so successful as our clothiers, in convincing
the wisdom of the nation, that the safety of the commonwealth depends upon the
prosperity of their particular manufacture. They have accordingly been much less
favoured. The exportation of raw hides has, indeed, been prohibited, and declared a
nuisance; but their importation from foreign countries has been subjected to a duty;
and though this duty has been taken off from those of Ireland and the plantations (for
the limited time of five years only), yet Ireland has not been confined to the market of
Great Britain for the sale of its surplus hides, or of those which are not manufactured
at home. The hides of common cattle have, but within these few years, been put
among the enumerated commodities which the plantations can send nowhere but to
the mother country; neither has the commerce of Ireland been in this case oppressed
hitherto, in order to support the manufactures of Great Britain.

Whatever regulations tend to sink the price, either of wool or of raw hides, below
what it naturally would he, must, in an improved and cultivated country, have some
tendency to raise the price of butcher’s meat. The price both of the oreat and small
cattle, which are fed on improved and cultivated land, must be sufficient to pay the
rent which the landlord, and the profit which the farmer, has reason to expect from
improved and cultivated land. If it is not, they will soon cease to feed them. Whatever
part of this price, therefore, is not paid by the wool and the hide, must be paid by the

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carcase. The less there is paid for the one, the more must be paid for the other. In what
mannet this price is to be divided upon the different parts of the beast, is indifferent to
the landlords and farmers, provided it is all paid to them. In an improved and cultivated
country, therefore, their interest as landlords and farmers cannot be much affected by
such regulations, though their interest as consumers may, by the rise in the price of
provisions. It would be quite otherwise, however, in an unimproved and uncultivated
country, where the greater part of the lands could be applied to no other purpose but
the feeding of cattle, and where the wool and the hide made the principal part of the
value of those cattle. Their interest as landlords and farmers would in this case be very
deeply affected by such regulations, and their interest as consumers very little. The
fall in the price of the wool and the hide would not in this case raise the price of the
carcase; because the greater part of the lands of the country being applicable to no
other purpose but the feeding of cattle, the same number would still continue to be
fed. The same quantity of butcher’s meat would still come to market. The demand for
it would be no greater than before. Its price, therefore, would be the same as before.
The whole price of cattle would fall, and along with it both the rent and the profit of
all those lands of which cattle was the principal produce, that is, of the greater part of
the lands of the country. The perpetual prohibition of the exportation of wool, which
is commonly, but very falsely, ascribed to Edward H1., would, in the then circumstances
of the country, have been the most destructive regulation which could well have been
thought of. It would not only have reduced the actual value of the greater part of the
lands in the kingdom, but by reducing the price of the most important species of small
cattle, it would have retarded very much its subsequent improvement.

The wool of Scotland fell very considerably in its price in consequence of the
union with England, by which it was excluded from the great market of Europe, and
confined to the narrow one of Great Britain. The value of the greater part of the lands
in the southern counties of Scotland, which are chiefly a sheep country, would have
‘been very deeply affected by this event, had not the rise in the price of butcher’s meat
fully compensated the fall in the price of wool.

As the efficacy of human industry, in increasing the quantity either of wool or of
raw hides, is limited, so far as it depends upon the produce of the country where it is
exerted; so it is uncertain so far as it depends upon the produce of other countries. It so
far depends not so much upon the quantity which they produce, as upon that which they
do not manufacture; and upon the restraints which they may or may not think proper
to impose upon the exportation of this sort of rude produce. These circumstances, as
they are altogether independent of domestic industry, so they necessarily render the
efficacy of its efforts more or less uncertain. In multiplying this sort of rude produce,
therefore, the efficacy of human industry is not only limited, but uncertain.

In multiplying another very important sort of rude produce, the quantity of fish
that is brought to market, it is likewise both limited and uncertain. It is limited by the
local situation of the country, by the proximity or distance of its different provinces
from the sea, by the number of its lakes and rivers, and by what may be called the

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fertility or barrenness of those seas, lakes, and rivers, as to this sort of rude produce.
As population increases, as the annual produce of the land and labour of the country
grows greater and greater, there come to be more buyers of fish; and those buyers, too,
have a greater quantity and variety of other goods, or, what is the same thing, the price
of a greater quantity and variety of other goods, to buy with. But it will generally be
impossible to supply the great and extended market, without employing a quantity of
labour greater than in proportion to what had been requisite for supplying the narrow
and confined one. A market which, from requiring only one thousand, comes to require
annually ten thousand ton of fish, can seldom be supplied, without employing more
than ten times the quantity of labour which had before been sufficient to supply it.
The fish must generally be sought for at a greater distance, larger vessels must be
employed, and more expensive machinery of every kind made use of. The real price
of this commodity, therefore, naturally rises in the progress of improvement. It has
accordingly done so, I believe, more or less in every country.

Though the success of a particular day’s fishing maybe a very uncertain matter, yet
the local situation of the country being supposed, the general efficacy of industry in
bringing a certain quantity of fish to market, taking the course of a year, or of several
years together, it may, perhaps, be thought is certain enough; and it, no doubt, is so.
As it depends more, however, upon the local situation of the country, than upon the
state of its wealth and industry; as upon this account it may in different countries be
the same in very different periods of improvement, and very different in the same
period; its connection with the state of improvement is uncertain; and it is of this sort
of uncertainty that I am here speaking.

In increasing the quantity of the different minerals and metals which are drawn
from the bowels of the earth, that of the more precious ones particularly, the efficacy
of human industry seems not to be limited, but to be altogether uncertain.

The quantity of the precious metals which is to be found in any country, is not limited
by any thing in its local situation, such as the fertility or barrenness of its own mines.
Those metals frequently abound in countries which possess no mines. Their quantity, in
every particular country, seems to depend upon two different circumstances; first, upon
its power of purchasing, upon the state of its industry, upon the annual produce of its
land and labour, in consequence of which it can afford to employ a greater or a smaller
quantity of labour and subsistence, in bringing or purchasing such superfluities as gold
and silver, either from its own mines, or from those of other countries; and, secondly,
upon the fertility or barrenness of the mines which may happen at any particular time
to supply the commercial world with those metals. The quantity of those metals in the
countries most remote from the mines, must be more ot less affected by this fertility or
barrenness, on account of the easy and cheap transportation of those metals, of their
small bulk and great value. Their quantity in China and Indostan must have been more
or less affected by the abundance of the mines of America.

So far as their quantity in any particular country depends upon the former of
those two circumstances (the powet of purchasing), their real price, like that of all

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other luxuries and superfluities, is likely to rise with the wealth and improvement of
the country, and to fall with its poverty and depression. Countries which have a great
quantity of labour and subsistence to spare, can afford to purchase any particular
quantity of those metals at the expense of a greater quantity of labour and subsistence,
than countries which have less to spare.

So far as their quantity in any particular country depends upon the latter of those
two circumstances (the fertility or barrenness of the mines which happen to supply the
commercial world), their real price, the real quantity of labour and subsistence which
they will purchase or exchange for, will, no doubt, sink more or less in proportion to
the fertility, and rise in proportion to the barrenness of those mines.

The fertility or barrenness of the mines, however, which may happen at any
particular time to supply the commercial world, is a circumstance which, it is evident,
may have no sort of connection with the state of industry in a particular country. It
seems even to have no very necessary connection with that of the world in general. As
arts and commerce, indeed, gradually spread themselves over a greater and a greater
part of the earth, the search for new mines, being extended over a wider surface,
may have somewhat a better chance for being successful than when confined within
narrower bounds. The discovery of new mines, however, as the old ones come to be
gradually exhausted, is a matter of the greatest uncertainty, and such as no human skill
or industry can insure. All indications, it is acknowledged, are doubtful; and the actual
discovery and successful working of a new mine can alone ascertain the reality of its
value, or even of its existence. In this search there seem to be no certain limits, either
to the possible success, or to the possible disappointment of human industry. In the
course of a century or two, it is possible that new mines may be discovered, more
fertile than any that have ever yet been known; and it is just equally possible, that the
most fertile mine then known may be more barren than any that was wrought before
the discovery of the mines of America. Whether the one or the other of those two

“events may happen to take place, is of very little importance to the real wealth and
prosperity of the world, to the real value of the annual produce of the land and labour
of mankind. Its nominal value, the quantity of gold and silver by which this annual
produce could be expressed or represented, would, no doubt, be very different; but its
real value, the real quantity of labour which it could purchase or command, would be
precisely the same. A shilling might, in the one case, represent no more labour than a
penny does at present, and a penny, in the other, might represent as much as a shilling
does now. But in the one case, he who had a shilling in his pocket would be no richer
than he who has a penny at present; and in the other, he who had a penny would be just
as rich as he who has a shilling now. The cheapness and abundance of gold and silver
plate would be the sole advantage which the world could derive from the one event;
and the dearness and scarcity of those trifling superfluities, the only inconveniency it

could suffer from the other.

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Conclusion of the Digression concerning the Variations in the Value of Silver.

The greater part of the writers who have collected the money price of things in
ancient times, seem to have considered the low money price of corn, and of goods in
general, or, in other words, the high value of gold and silver, as a proof, not only of
the scarcity of those metals, but of the poverty and barbarism of the country at the
time when it took place. This notion is connected with the system of political economy,
which represents national wealth as consisting in the abundance and national poverty in
the scatcity, of gold and silver; a system which I shall endeavour to explain and examine
at great length in the fourth book of this Inquiry. I shall only observe at present, that the
high value of the precious metals can be no proof of the poverty or barbarism of any
particular country at the time when it took place. It is a proof only of the barrenness
of the mines which happened at that time to supply the commercial world. A poor
country, as it cannot afford to buy more, so it can as little afford to pay dearer for gold
and silver than a rich one; and the value of those metals, therefore, is not likely to be
higher in the former than in the latter. In China, a country much richer than any part of
Europe, the value of the precious metals is much higher than in any part of Europe. As
the wealth of Europe, indeed, has increased greatly since the discovery of the mines of
America, so the value of gold and silver has gradually diminished. This diminution of
their value, however, has not been owing to the increase of the real wealth of Europe,
of the annual produce of its land and labour, but to the accidental discovery of more
abundant mines than any that were known before. The increase of the quantity of
gold and silver in Europe, and the increase of its manufactures and agriculture, are two
events which, though they have happened nearly about the same time, yet have arisen
from very different causes, and have scarce any natural connection with one another.
The one has arisen from a mere accident, in which neither prudence nor policy either
had or could have any share; the other, from the fall of the feudal system, and from
the establishment of a government which afforded to industry the only encouragement
which it requires, some tolerable security that it shall enjoy the fruits of its own labour.
Poland, where the feudal system still continues to take place, is at this day as beggarly a
country as it was before the discovery of America. The money price of corn, however,
has risen; the real value of the precious metals has fallen in Poland, in the same manner
as in other parts of Europe. Their quantity, therefore, must have increased there as
in other places, and nearly in the same proportion to the annual produce of its land
and labour. This increase of the quantity of those metals, however, has not, it seems,
increased that annual produce, has neither improved the manufactures and agriculture
of the country, nor mended the circumstances of its inhabitants. Spain and Portugal,
the countries which possess the mines, are, after Poland, perhaps the two most beggarly
countries in Europe. The value of the precious metals, however, must be lower in Spain
and Portugal than in any other part of Europe, as they come from those countries to
all other parts of Europe, loaded, not only with a freight and an insurance, but with the

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expense of smuggling, their exportation being either prohibited or subjected to a duty.
In proportion to the annual produce of the land and labour, therefore, their quantity
must be greater in those countries than in any other part of Europe; those countries,
however, are poorer than the greater part of Europe. Though the feudal system has
been abolished in Spain and Portugal, it has not been succeeded by a much better.

As the low value of gold and silver, therefore, is no proof of the wealth and
flourishing state of the country where it takes place; so neither is their high value, or
the low money price either of goods in general, or of corn in particular, any proof of
its poverty and barbarism.

But though the low money price, either of goods in general, or of corn in particular,
be no proof of the poverty or barbarism of the times, the low money price of some
particular sorts of goods, such as cattle, poultry, game of all kinds, etc. in proportion to
that of corn, is a most decisive one. It clearly demonstrates, first, their great abundance
in proportion to that of corn, and, consequently, the great extent of the land which
they occupied in proportion to what was occupied by corn; and, secondly, the low value
of this land in proportion to that of corn land, and, consequently, the uncultivated
and unimproved state of the far greater part of the lands of the country. It clearly
demonstrates, that the stock and population of the country did not bear the same
proportion to the extent of its territory, which they commonly do in civilized countries;
and that society was at that time, and in that country, but in its infancy. From the high
ot low money price, either of goods in general, or of corn in particular, we can infer
only, that the mines, which at that time happened to supply the commercial world with
gold and silver, were fertile or barren, not that the country was rich or poor. But from
the high or low money price of some sorts of goods in proportion to that of others,
we can infer, with a degree of probability that approaches almost to certainty, that it
was rich or poor, that the greater part of its lands were improved or unimproved, and
that it was either in a more or less barbarous state, or in a more ot less civilized one.

Any rise in the money price of goods which proceeded altogether from the
degradation of the value of silver, would affect all sorts of goods equally, and raise
their price universally, a third, or a fourth, or a fifth part higher, according as silver
happened to lose a third, or a fourth, or a fifth part of its former value. But the rise
in the price of provisions, which has been the subject of so much reasoning and
conversation, does not affect all sorts of provisions equally. Taking the course of the
present century at an average, the price of corn, it is acknowledged, even by those who
account for this tise by the degradation of the value of silver, has risen much less than
that of some other sorts of provisions. The rise in the price of those other sorts of
provisions, therefore, cannot be owing altogether to the degradation of the value of
silver. Some other causes must be taken into the account; and those which have been
above assigned, will, perhaps, without having recourse to the supposed degradation of
the value of silver, sufficiently explain this rise in those particular sorts of provisions,
of which the price has actually risen in proportion to that of corn.

As to the price of corn itself, it has, during the sixty-four first years of the present

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century, and before the late extraordinary course of bad seasons, been somewhat lower
than it was during the sixty-four last years of the preceding century. This fact is attested,
not only by the accounts of Windsor market, but by the public fiars of all the different
counties of Scotland, and by the accounts of several different markets in France, which
have been collected with great diligence and fidelity by Mr Messance, and by Mr Dupre
de St Maur. The evidence is more complete than could well have been expected in a
matter which is naturally so very difficult to be ascertained.

As to the high price of corn during these last ten or twelve years, it can be sufficiently
accounted for from the badness of the seasons, without supposing any degradation in
the value of silver.

The opinion, therefore, that silver is continually sinking in its value, seems not to
be founded upon any good observations, either upon the prices of corn, or upon those
of other provisions.

The same quantity of silver, it may perhaps be said, will, in the present times, even
according to the account which has been here given, purchase a much smaller quantity
of several sorts of provisions than it would have done during some part of the last
century; and to ascertain whether this change be owing to a rise in the value of those
goods, or to a fall in the value of silver, is only to establish a vain and useless distinction,
which can be of no sort of service to the man who has only a certain quantity of silver
to go to market with, or a certain fixed revenue in money. I certainly do not pretend
that the knowledge of this distinction will enable him to buy cheaper. It may not,
however, upon that account be altogether useless.

It may be of some use to the public, by affording an easy proof of the prosperous
condition of the country. If the rise in the price of some sorts of provisions be owing
altogether to a fall in the value of silver, it is owing to a circumstance, from which
nothing can be inferred but the fertility of the American mines. The real wealth of
the country, the annual produce of its land and labour, may, notwithstanding this
circumstance, be either gradually declining, as in Portugal and Poland; or gradually
advancing, as in most other parts of Europe. But if this rise in the price of some
sorts of provisions be owing to a rise in the real value of the land which produces
them, to its increased fertility, or, in consequence of more extended improvement and
good cultivation, to its having been rendered fit for producing corn; it is owing to a
circumstance which indicates, in the clearest manner, the prosperous and advancing
state of the country. The land constitutes by far the greatest, the most important, and
the most durable part of the wealth of every extensive country. It may surely be of
some use, of, at least, it may give some satisfaction to the public, to have so decisive a
proof of the increasing value of by far the greatest, the most important, and the most
durable part of its wealth.

It may, too, be of some use to the public, in regulating the pecuniary reward of
some of its inferior servants. If this rise in the price of some sorts of provisions be
owing to a fall in the value of silver, their pecuniary reward, provided it was not too large
before, ought certainly to be augmented in proportion to the extent of this fall. If it is

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not augmented, their real recompence will evidently be so much diminished. But if this
tise of price is owing to the increased value, in consequence of the improved fertility
of the land which produces such provisions, it becomes a much nicer matter to judge,
either in what proportion any pecuniary reward ought to be augmented, or whether
it ought to be augmented at all. The extension of improvement and cultivation, as it
necessarily raises more or less, in proportion to the price of corn, that of every sort of
animal food, so it as necessarily lowers that of, I believe, every sort of vegetable food.
It raises the price of animal food; because a great part of the land which produces it,
being rendered fit for producing corn, must afford to the landlord anti farmer the rent
and profit of corn land. It lowers the price of vegetable food; because, by increasing
the fertility of the land, it increases its abundance. The improvements of agriculture,
too, introduce many sorts of vegetable food, which requiring less land, and not more
labour than corn, come much cheaper to market. Such are potatoes and maize, or what
is called Indian corn, the two most important improvements which the agriculture of
Europe, perhaps, which Europe itself, has received from the great extension of its
commerce and navigation. Many sorts of vegetable food, besides, which in the rude
state of agriculture are confined to the kitchen-garden, and raised only by the spade,
come, in its improved state, to be introduced into common fields, and to be raised by
the plough; such as turnips, carrots, cabbages, etc. If, in the progress of improvement,
therefore, the real price of one species of food necessarily rises, that of another as
necessarily falls; and it becomes a matter of more nicety to judge how far the rise in the
one may be compensated by the fall in the other. When the real price of butcher’s meat
has once got to its height (which, with regard to every sort, except perhaps that of hogs
flesh, it seems to have done through a great part of England more than a century ago),
any tise which can afterwards happen in that of any other sort of animal food, cannot
much affect the circumstances of the inferior ranks of people. The circumstances of
the poor, through a great part of England, cannot surely be so much distressed by any
‘tise in the price of poultry, fish, wild-fowl, or venison, as they must be relieved by the
fall in that of potatoes.

In the present season of scarcity, the high price of corn no doubt distresses the
poor. But in times of moderate plenty, when corn is at its ordinary or average price, the
natural rise in the price of any other sort of rude produce cannot much affect them.
They suffer more, perhaps, by the artificial rise which has been occasioned by taxes in
the price of some manufactured commodities, as of salt, soap, leather, candles, malt,
beer, ale, etc.

Effects of the Progress of Improvement upon the real Price of Manufactures.

It is the natural effect of improvement, however, to diminish gradually the real
price of almost all manufactures. That of the manufacturing workmanship diminishes,
perhaps, in all of them without exception. In consequence of better machinery, of
greater dexterity, and of a more proper division and distribution of work, all of which
ate the natural effects of improvement, a much smaller quantity of labour becomes
requisite for executing any particular piece of work; and though, in consequence of

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the flourishing circumstances of the society, the real price of labour should rise very
considerably, yet the great diminution of the quantity will generally much more than
compensate the greatest rise which can happen in the price.

There are, indeed, a few manufactures, in which the necessary rise in the real price
of the rude materials will more than compensate all the advantages which improvement
can introduce into the execution of the work in carpenters’ and joiners’ work, and in
the coarser sort of cabinet work, the necessary rise in the real price of barren timber,
in consequence of the improvement of land, will more than compensate all the
advantages which can be derived from the best machinery, the greatest dexterity, and
the most proper division and distribution of work.

But in all cases in which the real price of the rude material either does not rise
at all, or does not rise very much, that of the manufactured commodity sinks very
considerably.

This diminution of price has, in the course of the present and preceding century,
been most remarkable in those manufactures of which the materials are the coarser
metals. A better movement of a watch, than about the middle of the last century could
have been bought for twenty pounds, may now perhaps be had for twenty shillings. In
the work of cutlers and locksmiths, in all the toys which are made of the coarser metals,
and in all those goods which are commonly known by the name of Birmingham and
Sheffield ware, there has been, during the same period, a very great reduction of price,
though not altogether so great as in watch-work. It has, however, been sufficient to
astonish the workmen of every other part of Europe, who in many cases acknowledge
that they can produce no work of equal goodness for double or even for triple the
price. There are perhaps no manufactures, in which the division of labour can be
carried further, or in which the machinery employed admits of’ a greater variety of
improvements, than those of which the materials are the coarser metals.

In the clothing manufacture there has, during the same period, been no such
sensible reduction of price. The price of superfine cloth, I have been assured, on
the contrary, has, within these five-and-twenty or thirty years, risen somewhat in
proportion to its quality, owing, it was said, to a considerable rise in the price of the
material, which consists altogether of Spanish wool. That of the Yorkshire cloth, which
is made altogether of English wool, is said, indeed, during the course of the present
century, to have fallen a good deal in proportion to its quality. Quality, however, is so
very disputable a matter, that I look upon all information of this kind as somewhat
uncertain. In the clothing manufacture, the division of labour is nearly the same now
as it was a century ago, and the machinery employed is not very different. There may,
however, have been some small improvements in both, which may have occasioned
some reduction of price.

But the reduction will appear much more sensible and undeniable, if we compare
the price of this manufacture in the present times with what it was in a much remoter
period, towards the end of the fifteenth century, when the labour was probably much
less subdivided, and the machinery employed much more imperfect, than it is at present.

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In 1487, being the 4th of Henry VIL, it was enacted, that “whosoever shall sell by
retail a broad yard of the finest scarlet grained, or of other grained cloth of the finest
making, above sixteen shillings, shall forfeit forty shillings for every yatd so sold.”
Sixteen shillings, therefore, containing about the same quantity of silver as four-and-
twenty shillings of our present money, was, at that time, reckoned not an unreasonable
price for a yard of the finest cloth; and as this is a sumptuary law, such cloth, it is
probable, had usually been sold somewhat dearer. A guinea may be reckoned the highest
Price in the present times. Even though the quality of the cloths, therefore, should
be supposed equal, and that of the present times is most probably much superior,
yet, even upon this supposition, the money price of the finest cloth appears to have
been considerably reduced since the end of the fifteenth century. But its real price has
been much more reduced. Six shillings and eightpence was then, and long afterwards,
reckoned the average price of a quarter of wheat. Sixteen shillings, therefore, was the
price of two quarters and more than three bushels of wheat. Valuing a quarter of
wheat in the present times at eight-and-twenty shillings, the real price of a yard of
fine cloth must, in those times, have been equal to at least three pounds six shillings
and sixpence of our present money. The man who bought it must have parted with
the command of a quantity of labour and subsistence equal to what that sum would
purchase in the present times.

The reduction in the real price of the coarse manufacture, though considerable, has
not been so great as in that of the fine.

In 1463, being the 3rd of Edward IV. it was enacted, that “no servant in husbandry
nor common labourer, nor servant to any artificer inhabiting out of a city or burgh,
shall use or wear in their clothing any cloth above two shillings the broad yard.” In the
3rd of Edward IV., two shillings contained very nearly the same quantity of silver as
four of our present money. But the Yorkshire cloth which is now sold at four shillings
the yard, is probably much superior to any that was then made for the wearing of
the very poorest order of common servants. Even the money price of their clothing,
therefore, may, in proportion to the quality, be somewhat cheaper in the present than
it was in those ancient times. The real price is certainly a good deal cheaper. Tenpence
was then reckoned what is called the moderate and reasonable price of a bushel of
wheat. Two shillings, therefore, was the price of two bushels and near two pecks of
wheat, which in the present times, at three shillings and sixpence the bushel, would
be worth eight shillings and ninepence. For a yard of this cloth the poor servant must
have parted with the power of purchasing a quantity of subsistence equal to what eight
shillings and ninepence would purchase in the present times. This is a sumptuary law,
too, restraining the luxury and extravagance of the poor. Their clothing, therefore, had
commonly been much more expensive.

The same order of people are, by the same law, prohibited from wearing hose, of
which the price should exceed fourteen-pence the pair, equal to about eight-and-twenty
pence of our present money. But fourteen-pence was in those times the price of a
bushel and near two pecks of wheat; which in the present times, at three and sixpence

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the bushel, would cost five shillings and threepence. We should in the present times
consider this as a very high price for a pair of stockings to a servant of the poorest and
lowest order. He must however, in those times, have paid what was really equivalent to
this price for them.

In the time of Edward IV. the art of knitting stockings was probably not known
in any part of Europe. Their hose were made of common cloth, which may have been
one of the causes of their dearness. The first person that wore stockings in England is
said to have been Queen Elizabeth. She received them as a present from the Spanish
ambassador.

Both in the coarse and in the fine woollen manufacture, the machinery employed
was much more imperfect in those ancient, than it is in the present times. It has since
received three very capital improvements, besides, probably, many smaller ones, of
which it may be difficult to ascertain either the number or the importance. The three
capital improvements are, first, the exchange of the rock and spindle for the spinning-
wheel, which, with the same quantity of labour, will perform more than double the
quantity of work. Secondly, the use of several very ingenious machines, which facilitate
and abridge, in a still greater proportion, the winding of the worsted and woollen yarn,
or the proper arrangement of the warp and woof before they are put into the loom;
an operation which, previous to the invention of those machines, must have been
extremely tedious and troublesome. Thirdly, the employment of the fulling-mill for
thickening the cloth, instead of treading it in water. Neither wind nor water mills of any
kind were known in England so early as the beginning of the sixteenth century, nor, so
far as I know, in any other part of Europe north of the Alps. They had been introduced
into Italy some time before.

The consideration of these circumstances may, perhaps, in some measure, explain
to us why the real price both of the coarse and of the fine manufacture was so much
higher in those ancient than it is in the present times. It cost a greater quantity of labour
to bring the goods to market. When they were brought thither, therefore, they must
have purchased, or exchanged for the price of, a greater quantity.

The coarse manufacture probably was, in those ancient times, carried on in England
in the same manner as it always has been in countries where arts and manufactures are
in their infancy. It was probably a household manufacture, in which every different
part of the work was occasionally performed by all the different members of almost
every private family, but so as to be their work only when they had nothing else to do,
and not to be the principal business from which any of them derived the greater part
of their subsistence. The work which is performed in this manner, it has already been
observed, comes always much cheaper to market than that which is the principal or
sole fund of the workman’s subsistence. The fine manufacture, on the other hand, was
not, in those times, carried on in England, but in the rich and commercial country of
Flanders; and it was probably conducted then, in the same manner as now, by people
who derived the whole, or the principal part of their subsistence from it. It was, besides,
a foreign manufacture, and must have paid some duty, the ancient custom of tonnage

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and poundage at least, to the king. This duty, indeed, would not probably be very great.
It was not then the policy of Europe to restrain, by high duties, the importation of
foreign manufactures, but rather to encourage it, in order that merchants might be
enabled to supply, at as easy a rate as possible, the great men with the conveniencies
and luxuries which they wanted, and which the industry of their own country could
not afford them.

The consideration of these circumstances may, perhaps, in some measure explain
to us why, in those ancient times, the real price of the coarse manufacture was, in
proportion to that of the fine, so much lower than in the present times.

Conclusion of the Chapter.

I shall conclude this very long chapter with observing, that every improvement in
the circumstances of the society tends, either directly or indirectly, to raise the real rent
of land to increase the real wealth of the landlord, his power of purchasing the labour,
or the produce of the labour of other people.

The extension of improvement and cultivation tends to raise it directly. The
landlord’s share of the produce necessarily increases with the increase of the produce.

That rise in the real price of those parts of the rude produce of land, which is first
the effect of the extended improvement and cultivation, and afterwards the cause of
their being still further extended, the rise in the price of cattle, for example, tends, too,
to raise the rent of land directly, and in a still greater proportion. The real value of the
landlord’s share, his real command of the labour of other people, not only rises with
the real value of the produce, but the proportion of his share to the whole produce
rises with it.

That produce, after the rise in its real price, requires no more labour to collect it
‘than before. A smaller proportion of it will, therefore, be sufficient to replace, with the
ordinary profit, the stock which employs that labour. A greater proportion of it must
consequently belong to the landlord.

All those improvements in the productive powers of labour, which tend directly
to reduce the rent price of manufactures, tend indirectly to raise the real rent of land.
The landlord exchanges that part of his rude produce, which is over and above his
own consumption, or, what comes to the same thing, the price of that part of it, for
manufactured produce. Whatever reduces the real price of the latter, raises that of
the former. An equal quantity of the former becomes thereby equivalent to a greater
quantity of the latter; and the landlord is enabled to purchase a greater quantity of the
conveniencies, ornaments, or luxuries which he has occasion for.

Every increase in the real wealth of the society, every increase in the quantity of
useful labour employed within it, tends indirectly to raise the real rent of land. A certain
proportion of this labour naturally goes to the land. A greater number of men and
cattle are employed in its cultivation, the produce increases with the increase of the

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stock which is thus employed in raising it, and the rent increases with the produce.

The contrary circumstances, the neglect of cultivation and improvement, the fall
in the real price of any part of the rude produce of land, the rise in the real price of
manufactures from the decay of manufacturing art and industry, the declension of the
real wealth of the society, all tend, on the other hand, to lower the real rent of land, to
reduce the real wealth of the landlord, to diminish his power of purchasing either the
labour, or the produce of the labour, of other people.

The whole annual produce of the land and labour of every country, or, what comes
to the same thing, the whole price of that annual produce, naturally divides itself, it has
already been observed, into three parts; the rent of land, the wages of labour, and the
profits of stock; and constitutes a revenue to three different orders of people; to those
who live by rent, to those who live by wages, and to those who live by profit. These are
the three great, original, and constituent, orders of every civilized society, from whose
revenue that of every other order is ultimately derived.

The interest of the first of those three great orders, it appears from what has
been just now said, is strictly and inseparably connected with the general interest of
the society. Whatever either promotes or obstructs the one, necessarily promotes or
obstructs the other. When the public deliberates concerning any regulation of commerce
or police, the proprietors of land never can mislead it, with a view to promote the
interest of their own particular order; at least, if they have any tolerable knowledge of
that interest. They are, indeed, too often defective in this tolerable knowledge. They are
the only one of the three orders whose revenue costs them neither labour nor care, but
comes to them, as it were, of its own accord, and independent of any plan or project of
their own. That indolence which is the natural effect of the ease and security of their
situation, renders them too often, not only ignorant, but incapable of that application
of mind, which is necessary in order to foresee and understand the consequence of
any public regulation.

The interest of the second order, that of those who live by wages, is as strictly
connected with the interest of the society as that of the first. The wages of the labourer,
it has already been shewn, are never so high as when the demand for labour is continually
rising, or when the quantity employed is every year increasing considerably. When this
real wealth of the society becomes stationary, his wages are soon reduced to what is
barely enough to enable him to bring up a family, or to continue the race of labourers.
When the society declines, they fall even below this. The order of proprietors may
perhaps gain more by the prosperity of the society than that of labourers; but there is
no order that suffers so cruelly from its decline. But though the interest of the labourer
is strictly connected with that of the society, he is incapable either of comprehending
that interest, or of understanding its connexion with his own. His condition leaves
him no time to receive the necessary information, and his education and habits are
commonly such as to render him unfit to judge, even though he was fully informed.
In the public deliberations, therefore, his voice is little heard, and less regarded; except
upon particular occasions, when his clamour is animated, set on, and supported by his

188

ADAM SMITH

employers, not for his, but their own particular purposes.

His employers constitute the third order, that of those who live by profit. It is
the stock that is employed for the sake of profit, which puts into motion the greater
part of the useful labour of every society. The plans and projects of the employers of
stock regulate and direct all the most important operation of labour, and profit is the
end proposed by all those plans and projects. But the rate of profit does not, like rent
and wages, rise with the prosperity, and fall with the declension of the society. On the
contrary, it is naturally low in rich, and high in poor countries, and it is always highest in
the countries which are going fastest to ruin. The interest of this third order, therefore,
has not the same connexion with the general interest of the society, as that of the other
two. Merchants and master manufacturers are, in this order, the two classes of people
who commonly employ the largest capitals, and who by their wealth draw to themselves
the greatest share of the public consideration. As during their whole lives they are
engaged in plans and projects, they have frequently more acuteness of understanding
than the greater part of country gentlemen. As their thoughts, however, are commonly
exercised rather about the interest of their own particular branch of business. than
about that of the society, their judgment, even when given with the greatest candour
(which it has not been upon every occasion), is much more to be depended upon
with regard to the former of those two objects, than with regard to the latter. Their
superiority over the country gentleman is, not so much in their knowledge of the public
interest, as in their having a better knowledge of their own interest than he has of his.
It is by this superior knowledge of their own interest that they have frequently imposed
upon his generosity, and persuaded him to give up both his own interest and that of the
public, from a very simple but honest conviction, that their interest, and not his, was
the interest of the public. The interest of the dealers, however, in any particular branch
of trade or manufactures, is always in some respects different from, and even opposite
to, that of the public. To widen the market, and to narrow the competition, is always
the interest of the dealers. To widen the market may frequently be agreeable enough to
the interest of the public; but to narrow the competition must always be against it, and
can only serve to enable the dealers, by raising their profits above what they naturally
would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-
citizens. The proposal of any new law or regulation of commerce which comes from
this order, ought always to be listened to with great precaution, and ought never to
be adopted till after having been long and carefully examined, not only with the most
scrupulous, but with the most suspicious attention. It comes from an otder of men,
whose interest is never exactly the same with that of the public, who have generally
an interest to deceive and even to oppress the public, and who accordingly have, upon
many occasions, both deceived and oppressed it.

# PRICES OF WHEAT

Year Prices/Quarter Average of different Average prices of
in each year prices in one year each year in money
Orel 7G

189

THE WEALTH OF NATIONS Se

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190

ADAM SMITH

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ADAM SMITH

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PRICES OESIME, QUARTER OF NINE BUSHELS OFTIHE BEST OR
HIGHEST PRICED WHEAT AT WINDSOR MARKET, ON LADY DAY AND
MICHAELMAS, FROM 1595 TO 1764 BOTH INCLUSIVE; THE PRICE OF
EACH YEAR BEING THE MEDIUM BETWEEN THE HIGHEST PRICES OF
THESE TWO MARKET DAYS.

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THE WEALTH OF NATIONS |

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194

ADAM SMITH ©

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THE WEALTH OF NATIONS

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196

ADAM SMITH

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THE WEALTH OF NATIONS

BOOK II.

OF THE NATURE, ACCUMULATION,
AND EMPLOYMENT OF STOCK.

INTRODUCTION.

n that rude state of society, in which there is no division of labour, in which exchanges
Ts seldom made, and in which every man provides every thing for himself, it is not
necessary that any stock should be accumulated, or stored up before-hand, in order
to carry on the business of the society. Every man endeavours to supply, by his own
industry, his own occasional wants, as they occur. When he is hungry, he goes to the
forest to hunt; when his coat is worn out, he clothes himself with the skin of the first
large animal he kills: and when his hut begins to go to ruin, he repairs it, as well as he
can, with the trees and the turf that are nearest it.

But when the division of labour has once been thoroughly introduced, the produce
of a man’s own labour can supply but a very small part of his occasional wants. The
far greater part of them are supplied by the produce of other men’s labour, which he
purchases with the produce, or, what is the same thing, with the price of the produce,
of his own. But this purchase cannot be made till such time as the produce of his own
labour has not only been completed, but sold. A stock of goods of different kinds,
therefore, must be stored up somewhere, sufficient to maintain him, and to supply
him with the materials and tools of his work, till such time at least as both these events
can be brought about. A weaver cannot apply himself entirely to his peculiar business,
unless there is before-hand stored up somewhere, either in his own possession, or in
that of some other person, a stock sufficient to maintain him, and to supply him with
the materials and tools of his work, till he has not only completed, but sold his web.
This accumulation must evidently be previous to his applying his industry for so long
a time to such a peculiar business.

As the accumulation of stock must, in the nature of things, be previous to the
division of labour, so labour can be more and more subdivided in proportion only
as stock is previously more and more accumulated. The quantity of materials which
the same number of people can work up, increases in a great proportion as labour
comes to be more and more subdivided; and as the operations of each workman are

198

ADAM SMITH

gradually reduced to a greater degree of simplicity, a variety of new machines come to
be invented for facilitating and abridging those operations. As the division of labour
advances, therefore, in order to give constant employment to an equal number of
workmen, an equal stock of provisions, and a greater stock of materials and tools than
what would have been necessary in a ruder state of things, must be accumulated before-
hand. But the number of workmen in every branch of business generally increases with
the division of labour in that branch; or rather it is the increase of their number which
enables them to class and subdivide themselves in this manner.

As the accumulation of stock is previously necessary for carrying on this great
improvement in the productive powers of labour, so that accumulation naturally
leads to this improvement. The person who employs his stock in maintaining labour,
necessarily wishes to employ it in such a manner as to produce as great a quantity of
work as possible. He endeavours, therefore, both to make among his workmen the
most proper distribution of employment, and to furnish them with the best machines
which he can either invent or afford to purchase. His abilities, in both these respects,
are generally in proportion to the extent of his stock, or to the number of people
whom it can employ. The quantity of industry, therefore, not only increases in every
country with the increase of the stock which employs it, but, in consequence of that
increase, the same quantity of industry produces a much greater quantity of work.

Such are in general the effects of the increase of stock upon industry and its
productive powers.

In the following book, I have endeavoured to explain the nature of stock, the
effects of its accumulation into capital of different kinds, and the effects of the
different employments of those capitals. This book is divided into five chapters. In
the first chapter, I have endeavoured to shew what are the different parts or branches
into which the stock, either of an individual, or of a great society, naturally divides
itself. In the second, I have endeavoured to explain the nature and operation of
- money, considered as a particular branch of the general stock of the society. The stock
which is accumulated into a capital, may either be employed by the person to whom it
belongs, or it may be lent to some other person. In the third and fourth chapters, I have
endeavoured to examine the manner in which it operates in both these situations. The
fifth and last chapter treats of the different effects which the different employments of
capital immediately produce upon the quantity, both of national industry, and of the
annual produce of land and labout.

THE WEALTH OF NATIONS ~

CHAPTER I.
OF THE DIVISION OF STOCK.

\ x Then the stock which a man possesses is no more than sufficient to maintain him

for a few days or a few weeks, he seldom thinks of deriving any revenue from
it. He consumes it as sparingly as he can, and endeavours, by his labour, to acquire
something which may supply its place before it be consumed altogether. His revenue
is, in this case, derived from his labour only. This is the state of the greater part of the
labouring poor in all countries.

But when he possesses stock sufficient to maintain him for months or years, he
naturally endeavours to derive a revenue from the greater part of it, reserving only so
much for his immediate consumption as may maintain him till this revenue begins to
come in. His whole stock, therefore, is distinguished into two parts. That part which
he expects is to afford him this revenue is called his capital. The other is that which
supplies his immediate consumption, and which consists either, first, in that portion
of his whole stock which was originally reserved for this purpose; or, secondly, in his
revenue, from whatever source derived, as it gradually comes in; or, thirdly, in such
things as had been purchased by either of these in former years, and which are not yet
entirely consumed, such as a stock of clothes, household furniture, and the like. In one
or other, or all of these three articles, consists the stock which men commonly reserve
for their own immediate consumption.

There are two different ways in which a capital may be employed so as to yield a
revenue or profit to its employer.

First, it maybe employed in raising, manufacturing, or purchasing goods, and
selling them again with a profit. The capital employed in this manner yields no revenue
or profit to its employer, while it either remains in his possession, or continues in the
same shape. The goods of the merchant yield him no revenue or profit till he sells them
for money, and the money yields him as little till it is again exchanged for goods. His
capital is continually going from him in one shape, and returning to him in another; and
it is only by means of such circulation, or successive changes, that it can yield him any
profit. Such capitals, therefore, may very properly be called circulating capitals.

Secondly, it may be employed in the improvement of land, in the purchase of
useful machines and instruments of trade, or in such like things as yield a revenue or
profit without changing masters, or circulating any further. Such capitals, therefore,
may very properly be called fixed capitals.

Different occupations require very different proportions between the fixed and

200

ADAM SMITH

circulating capitals employed in them.

The capital of a merchant, for example, is altogether a circulating capital. He has
occasion for no machines or instruments of trade, unless his shop or watehouse be
considered as such.

Some part of the capital of every master artificer or manufacturer must be fixed in
the instruments of his trade. This part, however, is very small in some, and very great in
others, A master tailor requires no other instruments of trade but a parcel of needles.
Those of the master shoemaker are a little, though but a very little, more expensive.
Those of the weaver rise a good deal above those of the shoemaker. The far greater
part of the capital of all such master artificers, however, is circulated either in the wages
of their workmen, or in the price of their materials, and repaid, with a profit, by the
price of the work.

In other works a much greater fixed capital is required. In a great 1ron-work, for
example, the furnace for melting the ore, the forge, the slit-mill, are instruments of
trade which cannot be erected without a very great expense. In coal works, and mines
of every kind, the machinery necessary, both for drawing out the water, and for other
purposes, is frequently still more expensive.

That part of the capital of the farmer which is employed in the instruments of
agriculture is a fixed, that which is employed in the wages and maintenance of his
labouring servants is a circulating capital. He makes a profit of the one by keeping it
in his own possession, and of the other by parting with it. The price or value of his
labouring cattle is a fixed capital, in the same manner as that of the instruments of
husbandry; their maintenance is a circulating capital, in the same manner as that of the
labouring servants. The farmer makes his profit by keeping the labouring cattle, and
by parting with their maintenance. Both the price and the maintenance of the cattle
which are bought in and fattened, not for labour, but for sale, are a circulating capital.
The farmer makes his profit by parting with them. A flock of sheep or a herd of cattle,
- that, in a breeding country, is brought in neither for labour nor for sale, but in order to
make a profit by their wool, by their milk, and by their increase, is a fixed capital. The
profit is made by keeping them. Their maintenance is a circulating capital. The profit is
made by parting with it; and it comes back with both its own profit and the profit upon
the whole price of the cattle, in the price of the wool, the milk, and the increase. The
whole value of the seed, too, is properly a fixed capital. Though it goes backwards and
forwatds between the ground and the granary, it never changes masters, and therefore
does not properly circulate. The farmer makes his profit, not by its sale, but by its
increase.

The general stock of any country or society is the same with that of all its inhabitants
ot members; and, therefore, naturally divides itself into the same three portions, each
of which has a distinct function or office.

The first is that portion which is reserved for immediate consumption, and of
which the characteristic is, that it affords no revenue or profit. It consists in the
stock of food, clothes, household furniture, etc. which have been purchased by their

201

THE WEALTH OF NATIONS

proper consumers, but which are not yet entirely consumed. The whole stock of mere
dwelling-houses, too, subsisting at anyone time in the country, make a part of this
first portion. The stock that is laid out in a house, if it is to be the dwelling-house of
the proprietor, ceases from that moment to serve in the function of a capital, or to
afford any revenue to its owner. A dwelling-house, as such, contributes nothing to the
revenue of its inhabitant; and though it is, no doubt, extremely useful to him, it is as his
clothes and household furniture are useful to him, which, however, make a part of his
expense, and not of his revenue. If it is to be let to a tenant for rent, as the house itself
can produce nothing, the tenant must always pay the rent out of some other revenue,
which he derives, either from labour, or stock, or land. Though a house, therefore, may
yield a revenue to its proprietor, and thereby serve in the function of a capital to him,
it cannot yield any to the public, nor serve in the function of a capital to it, and the
revenue of the whole body of the people can never be in the smallest degree increased
by it. Clothes and household furniture, in the same manner, sometimes yield a revenue,
and thereby serve in the function of a capital to particular persons. In countries where
masquerades are common, it is a trade to let out masquerade dresses for a night.
Upholsterers frequently let furniture by the month or by the year. Undertakers let the
furniture of funerals by the day and by the week. Many people let furnished houses,
and get a rent, not only for the use of the house, but for that of the furniture. The
revenue, however, which is derived from such things, must always be ultimately drawn
from some other source of revenue. Of all parts of the stock, either of an individual
or of a society, reserved for immediate consumption, what is laid out in houses is most
slowly consumed. A stock of clothes may last several years; a stock of furniture half a
century or a century; but a stock of houses, well built and properly taken care of, may
last many centuries. Though the period of their total consumption, however, is more
distant, they are still as really a stock reserved for immediate consumption as either
clothes or household furniture.

The second of the three portions into which the general stock of the society divides
itself, is the fixed capital; of which the characteristic is, that it affords a revenue or
profit without circulating or changing masters. It consists chiefly of the four following
articles.

First, of all useful machines and instruments of trade, which facilitate and abridge
labour.

Secondly, of all those profitable buildings which are the means of procuring a
revenue, not only to the proprietor who lets them for a rent, but to the person who
possesses them, and pays that rent for them; such as shops, warehouses, work-houses,
farm-houses, with all their necessary buildings, stables, granaries, etc. These are very
different from mere dwelling-houses. They are a sort of instruments of trade, and may
be considered in the same light.

Thirdly, of the improvements of land, of what has been profitably laid out in
clearing, draining, inclosing, manuring, and reducing it into the condition most proper
for tillage and culture. An improved farm may very justly be regarded in the same light

202

ADAM SMITH

as those useful machines which facilitate and abridge labour, and by means of which an
equal circulating capital can afford a much greater revenue to its employer. An improved
farm is equally advantageous and more durable than any of those machines, frequently
tequiring no other repairs than the most profitable application of the farmet’s capital
employed in cultivating it.

Fourthly, of the acquired and useful abilities of all the inhabitants and members of
the society. The acquisition of such talents, by the maintenance of the acquirer during
his education, study, or apprenticeship, always costs a real expense, which is a capital
fixed and realized, as it were, in his person. Those talents, as they make a part of his
fortune, so do they likewise that of the society to which he belongs. The improved
dexterity of a workman may be considered in the same light as a machine or instrument
of trade which facilitates and abridges labour, and which, though it costs a certain
expense, repays that expense with a profit.

The third and last of the three portions into which the general stock of the society
naturally divides itself, is the circulating capital, of which the characteristic is, that it
affords a revenue only by circulating or changing masters. It is composed likewise of
four parts.

First, of the money, by means of which all the other three are circulated and
distributed to their proper consumers.

Secondly, of the stock of provisions which are in the possession of the butcher,
the grazier, the farmer, the corn-merchant, the brewer, etc. and from the sale of which
they expect to derive a profit.

Thirdly, of the materials, whether altogether rude, or more or less manufactured,
of clothes, furniture, and building which are not yet made up into any of those three
shapes, but which remain in the hands of the growers, the manufacturers, the mercers,
and drapers, the timber-merchants, the carpenters and joiners, the brick-makers, etc.

Fourthly, and lastly, of the work which is made up and completed, but which 1s still
- in the hands of the merchant and manufacturer, and not yet disposed of or distributed
to the proper consumers; such as the finished work which we frequently find ready
made in the shops of the smith, the cabinet-maker, the goldsmith, the jeweller, the
china-merchant, etc. The circulating capital consists, in this manner, of the provisions,
materials, and finished work of all kinds that are in the hands of their respective dealers,
and of the money that is necessary for circulating and distributing them to those who
are finally to use or to consume them.

Of these four parts, three—provisions, materials, and finished work, are either
annually or in a longer or shorter period, regularly withdrawn from it, and placed either
in the fixed capital, or in the stock reserved for immediate consumption.

Every fixed capital is both originally derived from, and requires to be continually
supported by, a circulating capital. All useful machines and instruments of trade are
originally derived from a circulating capital, which furnishes the materials of which
they are made, and the maintenance of the workmen who make them. They require,
too, a capital of the same kind to keep them in constant repair.

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No fixed capital can yield any revenue but by means of a circulating capital.
The most useful machines and instruments of trade will produce nothing, without
the circulating capital, which affords the materials they are employed upon, and the
maintenance of the workmen who employ them. Land, however improved, will yield
no revenue without a circulating capital, which maintains the labourers who cultivate
and collect its produce.

To maintain and augment the stock which maybe reserved for immediate
consumption, is the sole end and purpose both of the fixed and circulating capitals. It
is this stock which feeds, clothes, and lodges the people. Their riches or poverty depend
upon the abundant or sparing supplies which those two capitals can afford to the stock
reserved for immediate consumption.

So great a part of the circulating capital being continually withdrawn from it, in
order to be placed in the other two branches of the general stock of the society, it must
in its turn require continual supplies without which it would soon cease to exist. These
supplies are principally drawn from three sources; the produce of land, of mines, and
of fisheries. These afford continual supplies of provisions and materials, of which part
is afterwards wrought up into finished work and by which are replaced the provisions,
materials, and finished work, continually withdrawn from the circulating capital. From
mines, too, is drawn what is necessary for maintaining and augmenting that part of
it which consists in money. For though, in the ordinary course of business, this part
is not, like the other three, necessarily withdrawn from it, in order to be placed in
the other two branches of the general stock of the society, it must, however, like all
other things, be wasted and worn out at last, and sometimes, too, be either lost or sent
abroad, and must, therefore, require continual, though no doubt much smaller supplies.

Lands, mines, and fisheries, require all both a fixed and circulating capital to cultivate
them; and their produce replaces, with a profit not only those capitals, but all the others
in the society. Thus the farmer annually replaces to the manufacturer the provisions
which he had consumed, and the materials which he had wrought up the year before;
and the manufacturer replaces to the farmer the finished work which he had wasted
and worn out in the same time. This is the real exchange that is annually made between
those two orders of people, though it seldom happens that the rude produce of the
one, and the manufactured produce of the other, are directly bartered for one another;
because it seldom happens that the farmer sells his corn and his cattle, his flax and his
wool, to the very same person of whom he chuses to purchase the clothes, furniture,
and instruments of trade, which he wants. He sells, therefore, his rude produce for
money, with which he can purchase, wherever it is to be had, the manufactured produce
he has occasion for. Land even replaces, in part at least, the capitals with which fisheries
and mines are cultivated. It is the produce of land which draws the fish from the
waters; and it is the produce of the surface of the earth which extracts the minerals
from its bowels.

The produce of land, mines, and fisheries, when their natural fertility is equal, is in
proportion to the extent and proper application of the capitals employed about them.

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When the capitals are equal, and equally well applied, it is in proportion to their natural
fertility.

In all countries where there is a tolerable security, every man of common
understanding will endeavour to employ whatever stock he can command, in procuring
either present enjoyment or future profit. If it is employed in procuring present
enjoyment, it is a stock reserved for immediate consumption. If it is employed in
procuring future profit, it must procure this profit either by staying with him, or by
going from him. In the one case it is a fixed, in the other it is a circulating capital. A
man must be perfectly crazy, who, where there is a tolerable security, does not employ
all the stock which he commands, whether it be his own, or borrowed of other people,
in some one or other of those three ways.

In those unfortunate countries, indeed, where men are continually afraid of the
violence of their superiors, they frequently bury or conceal a great part of their stock,
in order to have it always at hand to carry with them to some place of safety, in case of
their being threatened with any of those disasters to which they consider themselves at
all times exposed. This is said to be a common practice in Turkey, in Indostan, and, I
believe, in most other governments of Asia. It seems to have been a common practice
among our ancestors during the violence of the feudal government. Treasure-trove
was, in these times, considered as no contemptible part of the revenue of the greatest
sovereigns in Europe. It consisted in such treasure as was found concealed in the earth,
and to which no particular person could prove any right. This was regarded, in those
times, as so important an object, that it was always considered as belonging to the
sovereign, and neither to the finder nor to the proprietor of the land, unless the right
to it had been conveyed to the latter by an express clause in his charter. It was put upon
the same footing with gold and silver mines, which, without a special clause in the
charter, were never supposed to be comprehended in the general grant of the lands,
though mines of lead, copper, tin, and coal were, as things of smaller consequence.

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CHAPTER II.

OF MONEY, CONSIDERED AS A
PARTICULAR BRANCH OF THE
GENERAL STOCK OF THE SOCI-
ETY, OR OF THE EXPENSE OF
MAINTAINING THE NATIONAL
CAPITAL.

t has been shown in the First Book, that the price of the greater part of commodities
Jesse itself into three parts, of which one pays the wages of the labour, another
the profits of the stock, and a third the rent of the land which had been employed in
producing and bringing them to market: that there are, indeed, some commodities of
which the price is made up of two of those parts only, the wages of labour, and the
profits of stock; and a very few in which it consists altogether in one, the wages of
labour; but that the price of every commodity necessarily resolves itself into some one
ot other, or all, of those three parts; every part of it which goes neither to rent nor to
wages, being necessarily profit to some body.

Since this is the case, it has been observed, with regard to every particular commodity,
taken separately, it must be so with regard to all the commodities which compose the
whole annual produce of the land and labour of every country, taken complexly. The
whole price or exchangeable value of that annual produce must resolve itself into the
same three parts, and be parcelled out among the different inhabitants of the country,
either as the wages of their labour, the profits of their stock, or the rent of their land.

But though the whole value of the annual produce of the land and labour of every
country, is thus divided among, and constitutes a revenue to, its different inhabitants;
yet, as in the rent of a private estate, we distinguish between the gross rent and the neat
rent, so may we likewise in the revenue of all the inhabitants of a great country.

The gross rent of a private estate comprehends whatever is paid by the farmer;
the neat rent, what remains free to the landlord, after deducting the expense of
management, of repairs, and all other necessary charges; or what, without hurting his
estate, he can afford to place in his stock reserved for immediate consumption, or to

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spend upon his table, equipage, the ornaments of his house and furniture, his private
enjoyments and amusements. His real wealth is in proportion, not to his gross, but to
his neat rent.

The gross revenue of all the inhabitants of a great country comprehends the
whole annual produce of their land and labour; the neat revenue, what remains free
to them, after deducting the expense of maintaining first, their fixed, and, secondly,
their circulating capital, or what, without encroaching upon their capital, they can place
in their stock reserved for immediate consumption, or spend upon their subsistence,
conveniencies, and amusements. Their real wealth, too, is in proportion, not to their
gross, but to their neat revenue.

The whole expense of maintaining the fixed capital must evidently be excluded
from the neat revenue of the society. Neither the materials necessary for supporting
their useful machines and instruments of trade, their profitable buildings, etc. nor the
produce of the labour necessary for fashioning those materials into the proper form,
can ever make any part of it. The price of that labour may indeed make a part of it;
as the workmen so employed may place the whole value of their wages in their stock
reserved for immediate consumption. But in other sorts of labour, both the price and
the produce go to this stock; the price to that of the workmen, the produce to that of
other people, whose subsistence, conveniencies, and amusements, are augmented by
the labour of those workmen.

The intention of the fixed capital is to increase the productive powers of labour, or
to enable the same number of labourers to perform a much greater quantity of work.
In a farm where all the necessary buildings, fences, drains, communications, etc. are in
the most perfect good order, the same number of labourers and labouring cattle will
raise a much greater produce, than in one of equal extent and equally good ground, but
not furnished with equal conveniencies. In manufactures, the same number of hands,
assisted with the best machinery, will work up a much greater quantity of goods than
- with more imperfect instruments of trade. The expense which is properly laid out upon
a fixed capital of any kind, is always repaid with great profit, and increases the annual
produce by a much greater value than that of the support which such improvements
require. This support, however, still requires a certain portion of that produce. A certain
quantity of materials, and the labour of a certain number of workmen, both of which
might have been immediately employed to augment the food, clothing, and lodging, the
subsistence and conveniencies of the society, are thus diverted to another employment,
highly advantageous indeed, but still different from this one. It is upon this account
that all such improvements in mechanics, as enable the same number of workmen to
perform an equal quantity of work with cheaper and simpler machinery than had been
usual before, ate always regarded as advantageous to every society. A certain quantity
of materials, and the labour of a certain number of workmen, which had before been
employed in supporting a more complex and expensive machinery, can afterwards
be applied to augment the quantity of work which that or any other machinery is
useful only for performing, The undertaker of some great manufactory, who employs

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a thousand a-year in the maintenance of his machinery, if he can reduce this expense to
five hundred, will naturally employ the other five hundred in purchasing an additional
quantity of materials, to be wrought up by an additional number of workmen. The
quantity of that work, therefore, which his machinery was useful only for performing,
will naturally be augmented, and with it all the advantage and conveniency which the
society can derive from that work.

The expense of maintaining the fixed capital in a great country, may very properly
be compared to that of repairs in a private estate. The expense of repaits may frequently
be necessary for supporting the produce of the estate, and consequently both the gross
and the neat rent of the landlord. When by a more proper direction, however, it can be
diminished without occasioning any diminution of produce, the gross rent remains at
least the same as before, and the neat rent is necessarily augmented.

But though the whole expense of maintaining the fixed capital is thus necessarily
excluded from the neat revenue of the society, it is not the same case with that of
maintaining the circulating capital. Of the four parts of which this latter capital is
composed, money, provisions, materials, and finished work, the three last, it has already
been observed, are regularly withdrawn from it, and placed either in the fixed capital of
the society, or in their stock reserved for immediate consumption. Whatever portion
of those consumable goods is not employed in maintaining the former, goes all to the
latter, and makes a part of the neat revenue of the society. The maintenance of those
three parts of the circulating capital, therefore, withdraws no portion of the annual
produce from the neat revenue of the society, besides what is necessary for maintaining
the fixed capital.

The circulating capital of a society is in this respect different from that of an
individual. That of an individual is totally excluded from making any part of his neat
revenue, which must consist altogether in his profits. But though the circulating capital
of every individual makes a part of that of the society to which he belongs, it is not
upon that account totally excluded from making a part likewise of their neat revenue.
Though the whole goods in a merchant’s shop must by no means be placed in his own
stock reserved for immediate consumption, they may in that of other people, who,
from a revenue derived from other funds, may regularly replace their value to him,
together with its profits, without occasioning any diminution either of his capital or
of theirs.

Money, therefore, is the only part of the circulating capital of a society, of which
the maintenance can occasion any diminution in their neat revenue.

The fixed capital, and that part of the circulating capital which consists in money,
so far as they affect the revenue of the society, bear a very great resemblance to one
another.

First, as those machines and instruments of trade, etc. require a certain expense,
first to erect them, and afterwards to support them, both which expenses, though they
make a part of the gross, are deductions from the neat revenue of the society; so the
stock of money which circulates in any country must require a certain expense, first to

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ADAM SMITH

collect it, and afterwards to support it; both which expenses, though they make a part of
the gross, are, in the same manner, deductions from the neat revenue of the society. A
certain quantity of very valuable materials, gold and silver, and of very curious labour,
instead of augmenting the stock reserved for immediate consumption, the subsistence,
conveniencies, and amusements of individuals, is employed in supporting that great
but expensive instrument of commerce, by means of which every individual in the
society has his subsistence, conveniencies, and amusements, regularly distributed to
him in their proper proportions.

Secondly, as the machines and instruments of trade, etc. which compose the fixed
capital either of an individual or of a society, make no part either of the gross or of the
neat revenue of either; so money, by means of which the whole revenue of the society
is regularly distributed among all its different members, makes itself no part of that
revenue. The great wheel of circulation is altogether different from the goods which
are circulated by means of it. The revenue of the society consists altogether in those
goods, and not in the wheel which circulates them. In computing either the gross or
the neat revenue of any society, we must always, from the whole annual circulation of
money and goods, deduct the whole value of the money, of which not a single farthing
can ever make any part of either.

It is the ambiguity of language only which can make this proposition appear either
doubtful or paradoxical. When properly explained and understood, it is almost self-
evident.

When we talk of any particular sum of money, we sometimes mean nothing but
the metal pieces of which it is composed, and sometimes we include in our meaning
some obscure reference to the goods which can be had in exchange for it, or to the
power of purchasing which the possession of it conveys. Thus, when we say that the
circulating money of England has been computed at eighteen millions, we mean only
to express the amount of the metal pieces, which some writers have computed, or
rather have supposed, to circulate in that country. But when we say that a man is worth
fifty or a hundred pounds a-year, we mean commonly to express, not only the amount
of the metal pieces which are annually paid to him, but the value of the goods which he
can annually purchase or consume; we mean commonly to ascertain what is or ought
to be his way of living, or the quantity and quality of the necessaries and conveniencies
of life in which he can with propriety indulge himself.

When, by any particular sum of money, we mean not only to express the amount
of the metal pieces of which it is composed, but to include in its signification some
obscure reference to the goods which can be had in exchange for them, the wealth
or revenue which it in this case denotes, is equal only to one of the two values which
are thus intimated somewhat ambiguously by the same word, and to the latter more
properly than to the former, to the money’s worth more properly than to the money.

Thus, if a guinea be the weekly pension of a particular person, he can in the course
of the week purchase with it a certain quantity of subsistence, conveniencies, and
amusements. In proportion as this quantity is great or small, so are his real riches, his

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THE WEALTH OF NATIONS

real weekly revenue. His weekly revenue is certainly not equal both to the guinea and
to what can be purchased with it, but only to one or other of those two equal values,
and to the latter more properly than to the former, to the guinea’s worth rather than to
the guinea.

If the pension of such a person was paid to him, not in gold, but in a weekly bill
for a guinea, his revenue surely would not so properly consist in the piece of paper, as
in what he could get for it. A guinea may be considered as a bill for a certain quantity
of necessaries and conveniencies upon all the tradesmen in the neighbourhood. The
revenue of the person to whom it is paid, does not so properly consist in the piece
of gold, as in what he can get for it, or in what he can exchange it for. If it could be
exchanged for nothing, it would, like a bill upon a bankrupt, be of no more value than
the most useless piece of paper.

Though the weekly or yearly revenue of all the different inhabitants of any country,
in the same manner, may be, and in reality frequently is, paid to them in money, their
real riches, however, the real weekly or yearly revenue of all of them taken together,
must always be great or small, in proportion to the quantity of consumable goods
which they can all of them purchase with this money. The whole revenue of all of
them taken together is evidently not equal to both the money and the consumable
goods, but only to one or other of those two values, and to the latter more properly
than to the former.

Though we frequently, therefore, express a person’s revenue by the metal pieces
which are annually paid to him, it is because the amount of those pieces regulates the
extent of his power of purchasing, or the value of the goods which he can annually
afford to consume. We still consider his revenue as consisting in this power of
purchasing or consuming, and not in the pieces which convey it.

But if this is sufficiently evident, even with regard to an individual, it is still more
so with regard to a society. The amount of the metal pieces which are annually paid
to an individual, is often precisely equal to his revenue, and is upon that account the
shortest and best expression of its value. But the amount of the metal pieces which
circulate in a society, can never be equal to the revenue of all its members. As the same
guinea which pays the weekly pension of one man to-day, may pay that of another to-
morrow, and that of a third the day thereafter, the amount of the metal pieces which
annually circulate in any country, must always be of much less value than the whole
money pensions annually paid with them. But the power of purchasing, or the goods
which can successively be bought with the whole of those money pensions, as they
are successively paid, must always be precisely of the same value with those pensions;
as must likewise be the revenue of the different persons to whom they are paid. That
revenue, therefore, cannot consist in those metal pieces, of which the amount is so
much inferior to its value, but in the power of purchasing, in the goods which can
successively be bought with them as they circulate from hand to hand.

Money, therefore, the great wheel of circulation, the great instrument of commetce,
like all other instruments of trade, though it makes a part, and a very valuable part,

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ADAM SMITH

of the capital, makes no part of the revenue of the society to which it belongs;
and though the metal pieces of which it is composed, in the course of their annual
circulation, distribute to every man the revenue which properly belongs to him, they
make themselves no part of that revenue.

Thirdly, and lastly, the machines and instruments of trade, etc. which compose the
fixed capital, bear this further resemblance to that part of the circulating capital which
consists in money; that as every saving in the expense of erecting and supporting
those machines, which does not diminish the introductive powers of labour, is an
improvement of the neat revenue of the society; so every saving in the expense of
collecting and supporting that part of the circulating capital which consists in money is
an improvement of exactly the same kind.

It is sufficiently obvious, and it has partly, too, been explained already, in what
manner every saving in the expense of supporting the fixed capital is an improvement
of the neat revenue of the society. The whole capital of the undertaker of every work is
necessarily divided between his fixed and his circulating capital. While his whole capital
remains the same, the smaller the one part, the greater must necessarily be the other.
It is the circulating capital which furnishes the materials and wages of labour, and puts
industry into motion. Every saving, therefore, in the expense of maintaining the fixed
capital, which does not diminish the productive powers of labour, must increase the
fund which puts industry into motion, and consequently the annual produce of land
and labour, the real revenue of every society.

The substitution of paper in the room of gold and silver money, replaces a very
expensive instrument of commerce with one much less costly, and sometimes equally
convenient. Circulation comes to be carried on by a new wheel, which it costs less
both to erect and to maintain than the old one. But in what manner this operation 1s
performed, and in what manner it tends to increase either the gross or the neat revenue
of the society, is not altogether so obvious, and may therefore require some further
- explication.

There are several different sorts of paper money; but the circulating notes of banks
and bankers are the species which is best known, and which seems best adapted for this
purpose.

When the people of any particular country have such confidence in the fortune,
probity and prudence of a particular banker, as to believe that he is always ready to pay
upon demand such of his promissory notes as are likely to be at any time presented to
him, those notes come to have the same currency as gold and silver money, from the
confidence that such money can at any time be had for them.

A particular banker lends among his customers his own promissory notes, to the
extent, we shall suppose, of a hundred thousand pounds. As those notes serve all the
purposes of money, his debtors pay him the same interest as if he had lent them so
much money. This interest is the source of his gain. Though some of those notes are
continually coming back upon him for payment, part of them continue to circulate for
months and years together. Though he has generally in circulation, therefore, notes

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THE WEALTH OF NATIONS

to the extent of a hundred thousand pounds, twenty thousand pounds in gold and
silver may, frequently, be a sufficient provision for answering occasional demands.
By this operation, therefore, twenty thousand pounds in gold and silver perform all
the functions which a hundred thousand could otherwise have performed. The same
exchanges may be made, the same quantity of consumable goods may be circulated
and distributed to their proper consumers, by means of his promissory notes, to the
value of a hundred thousand pounds, as by an equal value of gold and silver money.
Eighty thousand pounds of gold and silver, therefore, can in this manner be spared
from the circulation of the country; and if different operations of the the same kind
should, at the same time, be carried on by many different banks and bankers, the whole
circulation may thus be conducted with a fifth part only of the gold and silver which
would otherwise have been requisite.

Let us suppose, for example, that the whole circulating money of some particular
country amounted, at a particular time, to one million sterling, that sum being then
sufficient for circulating the whole annual produce of their land and labour; let us
suppose, too, that some time thereafter, different banks and bankers issued promissory
notes payable to the bearer, to the extent of one million, reserving in their different
coffers two hundred thousand pounds for answering occasional demands; there would
remain, therefore, in circulation, eight hundred thousand pounds in gold and silver, and
a million of bank notes, or eighteen hundred thousand pounds of paper and money
together. But the annual produce of the land and labour of the country had before
required only one million to circulate and distribute it to its proper consumers, and that
annual produce cannot be immediately augmented by those operations of banking.
One million, therefore, will be sufficient to circulate it after them. The goods to be
bought and sold being precisely the same as before, the same quantity of money will be
sufficient for buying and selling them. The channel of circulation, if I may be allowed
such an expression, will remain precisely the same as before. One million we have
supposed sufficient to fill that channel. Whatever, therefore, is poured into it beyond
this sum, cannot run into it, but must overflow. One million eight hundred thousand
pounds are poured into it. Eight hundred thousand pounds, therefore, must overflow,
that sum being over and above what can be employed in the circulation of the country.
But though this sum cannot be employed at home, it is too valuable to be allowed to
lie idle. It will, therefore, be sent abroad, in order to seek that profitable employment
which it cannot find at home. But the paper cannot go abroad; because at a distance
from the banks which issue it, and from the country in which payment of it can be
exacted by law, it will not be received in common payments. Gold and silver, therefore,
to the amount of eight hundred thousand pounds, will be sent abroad, and the channel
of home circulation will remain filled with a million of paper instead of a million of
those metals which filled it before.

But though so great a quantity of gold and silver is thus sent abroad, we must not
imagine that it is sent abroad for nothing, or that its proprietors make a present of it
to foreign nations. They will exchange it for foreign goods of some kind or another, in

AL2

ADAM SMITH

order to supply the consumption either of some other foreign country, or of their own.

If they employ it in purchasing goods in one foreign country, in order to supply the
consumption of another, or in what is called the carrying trade, whatever profit they
make will be in addition to the neat revenue of their own country. It is like a new fund,
created for carrying on a new trade; domestic business being now transacted by paper,
and the gold and silver being converted into a fund for this new trade.

If they employ it in purchasing foreign goods for home consumption, they may
either, first, purchase such goods as are likely to be consumed by idle people, who
produce nothing, such as foreign wines, foreign silks, etc.; or, secondly, they may
purchase an additional stock of materials, tools, and provisions, in order to maintain
and employ an additional number of industrious people, who reproduce, with a profit,
the value of their annual consumption.

So far as it is employed in the first way, it promotes prodigality, increases expense
and consumption, without increasing production, or establishing any permanent fund
for supporting that expense, and is in every respect hurtful to the society.

So far as it is employed in the second way, it promotes industry; and though it
increases the consumption of the society, it provides a permanent fund for supporting
that consumption; the people who consume reproducing, with a profit, the whole value
of their annual consumption. The gross revenue of the society, the annual produce
of their land and labour, is increased by the whole value which the labour of those
workmen adds to the materials upon which they are employed, and their neat revenue
by what remains of this value, after deducting what is necessary for supporting the
tools and instruments of their trade.

That the greater part of the gold and silver which being forced abroad by those
operations of banking, is employed in purchasing foreign goods for home consumption,
is, and must be, employed in purchasing those of this second kind, seems not only
probable, but almost unavoidable. Though some particular men may sometimes
- increase their expense very considerably, though their revenue does not increase at
all, we maybe assured that no class or order of men ever does so; because, though the
principles of common prudence do not always govern the conduct of every individual,
they always influence that of the majority of every class or order. But the revenue of
idle people, considered as a class or order, cannot, in the smallest degree, be increased
by those operations of banking, Their expense in general, therefore, cannot be much
increased by them, though that of a few individuals among them may, and in reality
sometimes is. The demand of idle people, therefore, for foreign goods, being the same,
or very nearly the same as before, a very small part of the money which, being forced
abroad by those operations of banking, is employed in purchasing foreign goods for
home consumption, is likely to be employed in purchasing those for their use. The
greater part of it will naturally be destined for the employment of industry, and not for
the maintenance of idleness.

When we compute the quantity of industry which the circulating capital of any
society can employ, we must always have regard to those parts of it only which consist

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THE WEALTH OF NATIONS

in provisions, materials, and finished work; the other, which consists in money, and
which serves only to circulate those three, must always be deducted. In order to put
industry into motion, three things are requisite; materials to work upon, tools to work
with, and the wages or recompence for the sake of which the work is done. Money is
neither a material to work upon, nor a tool to work with; and though the wages of the
workman are commonly paid to him in money, his real revenue, like that of all other
men, consists, not in the money, but in the money’s worth; not in the metal pieces, but
in what can be got for them.

The quantity of industry which any capital can employ, must evidently be equal to
the number of workmen whom it can supply with materials, tools, and a maintenance
suitable to the nature of the work. Money may be requisite for purchasing the materials
and tools of the work, as well as the maintenance of the workmen; but the quantity of
industry which the whole capital can employ, is certainly not equal both to the money
which purchases, and to the materials, tools, and maintenance, which are purchased
with it, but only to one or other of those two values, and to the latter more properly
than to the former.

When paper is substituted in the room of gold and silver money, the quantity of
the materials, tools, and maintenance, which the whole circulating capital can supply,
may be increased by the whole value of gold and silver which used to be employed in
purchasing them. The whole value of the great wheel of circulation and distribution is
added to the goods which are circulated and distributed by means of it. The operation,
in some measure, resembles that of the undertaker of some great work, who, in
consequence of some improvement in mechanics, takes down his old machinery, and
adds the difference between its price and that of the new to his circulating capital, to
the fund from which he furnishes materials and wages to his workmen.

What is the proportion which the circulating money of any country bears to the
whole value of the annual produce circulated by means of it, it is perhaps impossible
to determine. It has been computed by different authors at a fifth, at a tenth, at a
twentieth, and at a thirtieth, part of that value. But how small soever the proportion
which the circulating money may bear to the whole value of the annual produce, as
but a part, and frequently but a small part, of that produce, is ever destined for the
maintenance of industry, it must always bear a very considerable proportion to that
part. When, therefore, by the substitution of paper, the gold and silver necessary for
circulation is reduced to, perhaps, a fifth part of the former quantity, if the value of
only the greater part of the other four-fifths be added to the funds which are destined
for the maintenance of industry, it must make a very considerable addition to the
quantity of that industry, and, consequently, to the value of the annual produce of land
and labour.

An operation of this kind has, within these five-and-twenty or thirty years, been
performed in Scotland, by the erection of new banking companies in almost every
considerable town, and even in some country villages. The effects of it have been
precisely those above described. The business of the country is almost entirely carried

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on by means of the paper of those different banking companies, with which purchases
and payments of all kinds are commonly made. Silver very seldom appears, except
in the change of a twenty shilling bank note, and gold still seldomer, But though
the conduct of all those different companies has not been unexceptionable, and has
accordingly required an act of parliament to regulate it, the country, notwithstanding,
has evidently derived great benefit from their trade. I have heard it asserted, that the
trade of the city of Glasgow doubled in about fifteen years after the first erection of
the banks there; and that the trade of Scotland has more than quadrupled since the first
erection of the two public banks at Edinburgh; of which the one, called the Bank of
Scotland, was established by act of parliament in 1695, and the other, called the Royal
Bank, by royal charter in 1727. Whether the trade, either of Scotland in general, or of
the city of Glasgow in particular, has really increased in so great a proportion, during
so short a period, I do not pretend to know. If either of them has increased in this
proportion, it seems to be an effect too great to be accounted for by the sole operation
of this cause. That the trade and industry of Scotland, however, have increased very
considerably during this period, and that the banks have contributed a good deal to this
increase, cannot be doubted.

The value of the silver money which circulated in Scotland before the Union in
1707, and which, immediately after it, was brought into the Bank of Scotland, in order
to be recoined, amounted to £411,117: 10: 9 sterling. No account has been got of the
gold coin; but it appears from the ancient accounts of the mint of Scotland, that the
value of the gold annually coined somewhat exceeded that of the silver. There were a
good many people, too, upon this occasion, who, from a diffidence of repayment, did
not bring their silver into the Bank of Scotland; and there was, besides, some English
coin, which was not called in. The whole value of the gold and silver, therefore, which
circulated in Scotland before the Union, cannot be estimated at less than a million
sterling. It seems to have constituted almost the whole circulation of that country;
- for though the circulation of the Bank of Scotland, which had then no rival, was
considerable, it seems to have made but a very small part of the whole. In the present
times, the whole circulation of Scotland cannot be estimated at less than two millions,
of which that part which consists in gold and silver, most probably, does not amount
to half a million. But though the circulating gold and silver of Scotland have suffered
so great a diminution during this period, its real riches and prosperity do not appear to
have suffered any. Its agriculture, manufactures, and trade, on the contrary, the annual
produce of its land and labour, have evidently been augmented.

It is chiefly by discounting bills of exchange, that is, by advancing money upon them
before they are due, that the greater part of banks and bankers issue their promissory
notes. They deduct always, upon whatever sum they advance, the legal interest till the
bill shall become due. The payment of the bill, when it becomes due, replaces to the
bank the value of what had been advanced, together with a clear profit of the interest.
The banker, who advances to the merchant whose bill he discounts, not gold and silver,
but his own promissory notes, has the advantage of being able to discount to a greater

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THE WEALTH OF NATIONS

amount by the whole value of his promissory notes, which he finds, by experience, are
commonly in circulation. He is thereby enabled to make his clear gain of interest on so
much a larger sum.

The commerce of Scotland, which at present is not very great, was still more
inconsiderable when the two first banking companies were established; and those
companies would have had but little trade, had they confined their business to the
discounting of bills of exchange. They invented, therefore, another method of issuing
their promissory notes; by granting what they call cash accounts, that is, by giving
credit, to the extent of a certain sum (two or three thousand pounds for example), to
any individual who could procure two persons of undoubted credit and good landed
estate to become surety for him, that whatever money should be advanced to him,
within the sum for which the credit had been given, should be repaid upon demand,
together with the legal interest. Credits of this kind are, I believe, commonly granted
by banks and bankers in all different parts of the world. But the easy terms upon which
the Scotch banking companies accept of repayment are, so far as I know, peculiar to
them, and have perhaps been the principal cause, both of the great trade of those
companies, and of the benefit which the country has received from it.

Whoever has a credit of this kind with one of those companies, and borrows
a thousand pounds upon it, for example, may repay this sum piece-meal, by twenty
and thirty pounds at a time, the company discounting a proportionable part of the
interest of the great sum, from the day on which each of those small sums is paid in,
till the whole be in this manner repaid. All merchants, therefore, and almost all men
of business, find it convenient to keep such cash accounts with them, and are thereby
interested to promote the trade of those companies, by readily receiving their notes
in all payments, and by encouraging all those with whom they have any influence to
do the same. The banks, when their customers apply to them for money, generally
advance it to them in their own promissory notes. These the merchants pay away to the
manufacturers for goods, the manufacturers to the farmers for materials and provisions,
the farmers to their landlords for rent; the landlords repay them to the merchants for
the conveniencies and luxuries with which they supply them, and the merchants again
return them to the banks, in order to balance their cash accounts, or to replace what
they my have borrowed of them; and thus almost the whole money business of the
country is transacted by means of them. Hence the great trade of those companies.

By means of those cash accounts, every merchant can, without imprudence, carry
on a greater trade than he otherwise could do. If there are two merchants, one in
London and the other in Edinburgh, who employ equal stocks in the same branch
of trade, the Edinburgh merchant can, without imprudence, carry on a greater trade,
and give employment to a greater number of people, than the London merchant. The
London merchant must always keep by him a considerable sum of money, either in
his own coffers, or in those of his banker, who gives him no interest for it, in order to
answer the demands continually coming upon him for payment of the goods which
he purchases upon credit. Let the ordinary amount of this sum be supposed five

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ee : ADAM SMITH

hundred pounds; the value of the goods in his warehouse must always be less, by five
hundred pounds, than it would have been, had he not been obliged to keep such a
sum unemployed. Let us suppose that he generally disposes of his whole stock upon
hand, or of goods to the value of his whole stock upon hand, once in the year. By
being obliged to keep so great a sum unemployed, he must sell in a year five hundred
pounds worth less goods than he might otherwise have done. His annual profits must
be less by all that he could have made by the sale of five hundred pounds worth more
goods; and the number of people employed in preparing his goods for the market must
be less by all those that five hundred pounds more stock could have employed. The
merchant in Edinburgh, on the other hand, keeps no money unemployed for answering
such occasional demands. When they actually come upon him, he satisfies them from
his cash account with the bank, and gradually replaces the sum borrowed with the
money or paper which comes in from the occasional sales of his goods. With the same
stock, therefore, he can, without imprudence, have at all times in his warehouse a larger
quantity of goods than the London merchant; and can thereby both make a greater
profit himself, and give constant employment to a greater number of industrious
people who prepare those goods for the market. Hence the great benefit which the
country has derived from this trade.

The facility of discounting bills of exchange, it may be thought, indeed, gives
the English merchants a conveniency equivalent to the cash accounts of the Scotch
merchants. But the Scotch merchants, it must be remembered, can discount their
bills of exchange as easily as the English merchants; and have, besides, the additional
conveniency of their cash accounts.

The whole paper money of every kind which can easily circulate in any country,
never can exceed the value of the gold and silver, of which it supplies the place, or which
(the commerce being supposed the same) would circulate there, if there was no paper
money. If twenty shilling notes, for example, are the lowest paper money current in

- Scotland, the whole of that currency which can easily circulate there, cannot exceed the
sum of gold and silver which would be necessary for transacting the annual exchanges
of twenty shillings value and upwards usually transacted within that country. Should the
circulating paper at any time exceed that sum, as the excess could neither be sent abroad
nor be employed in the circulation of the country, it must immediately return upon the

“banks, to be exchanged for gold and silver. Many people would immediately perceive
that they had more of this paper than was necessary for transacting their business at
home; and as they could not send it abroad, they would immediately demand payment
for it from the banks. When this superfluous paper was converted into gold and silver,
they could easily find a use for it, by sending it abroad; but they could find none while it
remained in the shape of paper. There would immediately, therefore, be a run upon the
banks to the whole extent of this superfluous paper, and if they showed any difficulty
or backwardness in payment, to a much greater extent; the alarm which this would
occasion necessarily increasing the run.

Over and above the expenses which are common to every branch of trade, such as

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THE WEALTH OF NATIONS |

the expense of house-rent, the wages of servants, clerks, accountants, etc. the expenses
peculiar to a bank consist chiefly in two articles: first, in the expense of keeping at all
times in its coffers, for answering the occasional demands of the holders of its notes,
a large sum of money, of which it loses the interest; and, secondly, in the expense of
replenishing those coffers as fast as they are emptied by answering such occasional
demands.

A banking company which issues more paper than can be employed in the
citculation of the country, and of which the excess is continually returning upon them
for payment, ought to increase the quantity of gold and silver which they keep at
all times in their coffers, not only in proportion to this excessive increase of their
circulation, but in a much greater proportion; their notes returning upon them much
faster than in proportion to the excess of their quantity. Such a company, therefore,
ought to increase the first article of their expense, not only in proportion to this forced
increase of their business, but in a much greater proportion.

The coffers of such a company, too, though they ought to be filled much fuller, yet
must empty themselves much faster than if their business was confined within more
reasonable bounds, and must require not only a more violent, but a more constant and
uninterrupted exertion of expense, in order to replenish them, The coin, too, which is
thus continually drawn in such large quantities from their coffers, cannot be employed
in the circulation of the country. It comes in place of a paper which is over and above
what can be employed in that circulation, and is, therefore, over and above what can
be employed in it too. But as that coin will not be allowed to lie idle, it must, in one
shape or another, be sent abroad, in order to find that profitable employment which it
cannot find at home; and this continual exportation of gold and silver, by enhancing
the difficulty, must necessarily enhance still farther the expense of the bank, in finding
new gold and silver in order to replenish those coffers, which empty themselves so very
rapidly. Such a company, therefore, must in proportion to this forced increase of their
business, increase the second article of their expense still more than the first.

Let us suppose that all the paper of a particular bank, which the circulation of
the country can easily absorb and employ, amounts exactly to forty thousand pounds,
and that, for answering occasional demands, this bank is obliged to keep at all times
in its coffers ten thousand pounds in gold and silver. Should this bank attempt to
circulate forty-four thousand pounds, the four thousand pounds which ate over and
above what the circulation can easily absorb and employ, will return upon it almost as
fast as they are issued. For answering occasional demands, therefore, this bank ought to
keep at all times in its coffers, not eleven thousand pounds only, but fourteen thousand
pounds. It will thus gain nothing by the interest of the four thousand pounds excessive
circulation; and it will lose the whole expense of continually collecting four thousand
pounds in gold and silver, which will be continually going out of its coffers as fast as
they are brought into them.

Had every particular banking company always understood and attended to its
own particular interest, the circulation never could have been overstocked with paper

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money. But every particular banking company has not always understood or attended
to its own particular interest, and the circulation has frequently been overstocked with
paper money.

By issuing too great a quantity of paper, of which the excess was continually
returning, in order to be exchanged for gold and silver, the Bank of England was
for many years together obliged to coin gold to the extent of between eight hundred
thousand pounds and a million a-year; or, at an average, about eight hundred and fifty
thousand pounds. For this great coinage, the bank (inconsequence of the worn and
degraded state into which the gold coin had fallen a few years ago) was frequently
obliged to purchase gold bullion at the high price of four pounds an ounce, which
it soon after issued in coin at £3:17:10 1/2 an ounce, losing in this manner between
two and a half and three per cent. upon the coinage of so very large a sum. Though
the bank, therefore, paid no seignorage, though the government was properly at the
expense of this coinage, this liberality of government did not prevent altogether the
expense of the bank.

The Scotch banks, in consequence of an excess of the same kind, were all obliged
to employ constantly agents at London to collect money for them, at an expense which
was seldom below one and a half or two per cent. This money was sent down by the
waggon, and insured by the carriers at an additional expense of three quarters per
cent. or fifteen shillings on the hundred pounds. Those agents were not always able
to replenish the coffers of their employers so fast as they were emptied. In this case,
the resource of the banks was, to draw upon their correspondents in London bills of
exchange, to the extent of the sum which they wanted. When those correspondents
afterwards drew upon them for the payment of this sum, together with the interest
and commission, some of those banks, from the distress into which their excessive
circulation had thrown them, had sometimes no other means of satisfying this draught,
but by drawing a second set of bills, either upon the same, or upon some other
- correspondents in London; and the same sum, or rather bills for the same sum, would
in this manner make sometimes more than two or three journeys; the debtor bank
paying always the interest and commission upon the whole accumulated sum. Even
those Scotch banks which never distinguished themselves by their extreme imprudence,
were sometimes obliged to employ this ruinous resource.

The gold coin which was paid out, either by the Bank of England or by the Scotch
banks, in exchange for that part of their paper which was over and above what could
be employed in the circulation of the country, being likewise over and above what
could be employed in that circulation, was sometimes sent abroad in the shape of
coin, sometimes melted down and sent abroad in the shape of bullion, and sometimes
melted down and sold to the Bank of England at the high price of four pounds an
ounce. It was the newest, the heaviest, and the best pieces only, which were carefully
picked out of the whole coin, and either sent abroad or melted down. At home, and
while they remained in the shape of coin, those heavy pieces were of no more value
than the light; but they were of more value abroad, or when melted down into bullion

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THE WEALTH OF NATIONS

at home. The Bank of England, notwithstanding their great annual coinage, found,
to their astonishment, that there was every year the same scarcity of coin as there
had been the year before; and that, notwithstanding the great quantity of good and
new coin which was every year issued from the bank, the state of the coin, instead of
erowing better and better, became every year worse and worse. Every year they found
themselves under the necessity of coining nearly the same quantity of gold as they
had coined the year before; and from the continual rise in the price of gold bullion,
in consequence of the continual wearing and clipping of the coin, the expense of this
great annual coinage became, every year, greater and greater. The Bank of England, it
is to be observed, by supplying its own coffers with coin, is indirectly obliged to supply
the whole kingdom, into which coin is continually flowing from those coffers in a
great variety of ways. Whatever coin, therefore, was wanted to support this excessive
circulation both of Scotch and English paper money, whatever vacuities this excessive
circulation occasioned in the necessary coin of the kingdom, the Bank of England was
obliged to supply them. The Scotch banks, no doubt, paid all of them very dearly for
their own imprudence and inattention: but the Bank of England paid very dearly, not
only for its own imprudence, but for the much greater imprudence of almost all the
Scotch banks.

The over-trading of some bold projectors in both parts of the united kingdom,
was the original cause of this excessive circulation of paper money.

What a bank can with propriety advance to a merchant or undertaker of any kind,
is not either the whole capital with which he trades, or even any considerable part of
that capital; but that part of it only which he would otherwise be obliged to keep by
him unemployed and in ready money, for answering occasional demands. If the paper
money which the bank advances never exceeds this value, it can never exceed the value
of the gold and silver which would necessarily circulate in the country if there was no
paper money; it can never exceed the quantity which the circulation of the country can
easily absorb and employ.

When a bank discounts to a merchant a real bill of exchange, drawn by a real
creditor upon a real debtor, and which, as soon as it becomes due, is really paid by that
debtor; it only advances to him a part of the value which he would otherwise be obliged
to keep by him unemployed and in ready money, for answering occasional demands.
The payment of the bill, when it becomes due, replaces to the bank the value of what it
had advanced, together with the interest. The coffers of the bank, so far as its dealings
are confined to such customers, resemble a water-pond, from which, though a stream is
continually running out, yet another is continually running in, fully equal to that which
runs out; so that, without any further care or attention, the pond keeps always equally,
or very near equally full. Little or no expense can ever be necessary for replenishing the
coffers of such a bank.

A merchant, without over-trading, may frequently have occasion for a sum of ready
money, even when he has no bills to discount. When a bank, besides discounting his
bills, advances him likewise, upon such occasions, such sums upon his cash account,

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and accepts of a piece-meal repayment, as the money comes in from the occasional sale
of his goods, upon the easy terms of the banking companies of Scotland; it dispenses
him entirely from the necessity of keeping any part of his stock by him unemployed and
in ready money for answering occasional demands. When such demands actually come
upon him, he can answer them sufficiently from his cash account. The bank, however,
in dealing with such customers, ought to observe with great attention, whether, in the
course of some short period (of four, five, six, or eight months, for example), the sum
of the repayments which it commonly receives from them, is, or is not, fully equal
to that of the advances which it commonly makes to them. If, within the course of
such short periods, the sum of the repayments from certain customers is, upon most
occasions, fully equal to that of the advances, it may safely continue to deal with such
customers. Though the stream which is in this case continually running out from its
coffers may be very large, that which is continually running into them must be at least
equally large, so that, without any further care or attention, those coffers are likely to
be always equally or very near equally full, and scarce ever to require any extraordinary
expense to replenish them. If, on the contrary, the sum of the repayments from certain
other customers, falls commonly very much short of the advances which it makes to
them, it cannot with any safety continue to deal with such customers, at least if they
continue to deal with it in this manner. The stream which is in this case continually
running out from its coffers, is necessarily much larger than that which is continually
running in; so that, unless they are replenished by some great and continual effort of
expense, those coffers must soon be exhausted altogether.

The banking companies of Scotland, accordingly, were for a long time very careful
to require frequent and regular repayments from all their customers, and did not care to
deal with any person, whatever might be his fortune or credit, who did not make, what
they called, frequent and regular operations with them. By this attention, besides saving
almost entirely the extraordinary expense of replenishing their coffers, they gained two
- other very considerable advantages.

First, by this attention they were enabled to make some tolerable judgment
concerning the thriving or declining circumstances of their debtors, without being
obliged to look out for any other evidence besides what their own books afforded them;
men being, for the most part, either regular or irregular in their repayments, according
as their circumstances are either thriving or declining. A private man who lends out
his money to perhaps half a dozen or a dozen of debtors, may, either by himself or
his agents, observe and inquire both constantly and carefully into the conduct and
situation of each of them. But a banking company, which lends money to perhaps five
hundred different people, and of which the attention is continually occupied by objects
of a very different kind, can have no regular information concerning the conduct and
circumstances of the greater part of its debtors, beyond what its own books afford
it. In requiring frequent and regular repayments from all their customers, the banking
companies of Scotland had probably this advantage in view.

Secondly, by this attention they secured themselves from the possibility of issuing

22\

THE WEALTH OF NATIONS

more paper money than what the circulation of the country could easily absorb and
employ. When they observed, that within moderate periods of time, the repayments
of a particular customer were, upon most occasions, fully equal to the advances which
they had made to him, they might be assured that the paper money which they had
advanced to him had not, at any time, exceeded the quantity of gold and silver which he
would otherwise have been obliged to keep by him for answering occasional demands;
and that, consequently, the paper money, which they had circulated by his means, had
not at any time exceeded the quantity of gold and silver which would have circulated
in the country, had there been no paper money. The frequency, regularity, and amount
of his repayments, would sufficiently demonstrate that the amount of their advances
had at no time exceeded that part of his capital which he would otherwise have been
obliged to keep by him unemployed, and in ready money, for answering occasional
demands; that is, for the purpose of keeping the rest of his capital in constant
employment. It is this part of his capital only which, within moderate periods of time,
is continually returning to every dealer in the shape of money, whether paper or coin,
and continually going from him in the same shape. If the advances of the bank had
commonly exceeded this part of his capital, the ordinary amount of his repayments
could not, within moderate periods of time, have equalled the ordinary amount of its
advances. The stream which, by means of his dealings, was continually running into
the coffers of the bank, could not have been equal to the stream which, by means of
the same dealings was continually running out. The advances of the bank paper, by
exceeding the quantity of gold and silver which, had there been no such advances, he
would have been obliged to keep by him for answering occasional demands, might
soon come to exceed the whole quantity of gold and silver which ( the commerce being
supposed the same ) would have circulated in the country, had there been no paper
money; and, consequently, to exceed the quantity which the circulation of the country
could easily absorb and employ; and the excess of this paper money would immediately
have returned upon the bank, in order to be exchanged for gold and silver. This second
advantage, though equally real, was not, perhaps, so well understood by all the different
banking companies in Scotland as the first.

When, partly by the conveniency of discounting bills, and partly by that of cash
accounts, the creditable traders of any country can be dispensed from the necessity of
keeping any part of their stock by them unemployed, and in ready money, for answering
occasional demands, they can reasonably expect no farther assistance from hanks and
bankers, who, when they have gone thus far, cannot, consistently with their own interest
and safety, go farther. A bank cannot, consistently with its own interest, advance to a
trader the whole, or even the greater part of the circulating capital with which he trades;
because, though that capital is continually returning to him in the shape of money, and
going from him in the same shape, yet the whole of the returns is too distant from the
whole of the outgoings, and the sum of his repayments could not equal the sum of
his advances within such moderate periods of time as suit the conveniency of a bank.
Still less could a bank afford to advance him any considerable part of his fixed capital;

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of the capital which the undertaker of an iron forge, for example, employs in erecting
his forge and smelting-houses, his work-houses, and warehouses, the dwelling-houses
of his workmen, etc.; of the capital which the undertaker of a mine employs in sinking
his shafts, in erecting engines for drawing out the water, in making roads and waggon-
ways, etc.; of the capital which the person who undertakes to improve land employs
in clearing, draining, inclosing, manuring, and ploughing waste and uncultivated fields;
in building farmhouses, with all their necessary appendages of stables, granaries, etc.
The returns of the fixed capital are, in almost all cases, much slower than those of the
circulating capital: and such expenses, even when laid out with the greatest prudence and
judgment, very seldom return to the undertaker till after a period of many years, a period
by far too distant to suit the conveniency of a bank. Traders and other undertakers may,
no doubt with great propriety, carry on a very considerable part of their projects with
borrowed money. In justice to their creditors, however, their own capital ought in this
case to be sufficient to insure, if I may say so, the capital of those creditors; or to render
it extremely improbable that those creditors should incur any loss, even though the
success of the project should fall very much short of the expectation of the projectors.
Even with this precaution, too, the money which is borrowed, and which it is meant
should not be repaid till after a period of several years, ought not to be borrowed of
a bank, but ought to be borrowed upon bond or mortgage, of such private people as
propose to live upon the interest of their money, without taking the trouble themselves
to employ the capital, and who are, upon that account, willing to lend that capital to
such people of good credit as are likely to keep it for several years. A bank, indeed,
which lends its money without the expense of stamped paper, or of attorneys’ fees for
drawing bonds and mortgages, and which accepts of repayment upon the easy terms
of the banking companies of Scotland, would, no doubt, be a very convenient creditor
to such traders and undertakers. But such traders and undertakers would surely be most
inconvenient debtors to such a bank.

It is now more than five and twenty years since the paper money issued by the
different banking companies of Scotland was fully equal, or rather was somewhat more
than fully equal, to what the circulation of the country could easily absorb and employ.
Those companies, therefore, had so long ago given all the assistance to the traders and
other undertakers of Scotland which it is possible for banks and bankers, consistently
with their own interest, to give. They had even done somewhat more. They had over-
traded a little, and had brought upon themselves that loss, or at least that diminution
of profit, which, in this particular business, never fails to attend the smallest degree of
over-trading, Those traders and other undertakers, having got so much assistance from
banks and bankers, wished to get still more. The banks, they seem to have thought,
could extend their credits to whatever sum might be wanted, without incurring any
other expense besides that of a few reams of paper. They complained of the contracted
views and dastardly spirit of the directors of those banks, which did not, they said,
extend their credits in proportion to the extension of the trade of the country; meaning,
no doubt, by the extension of that trade, the extension of their own projects beyond

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THE WEALTH OF NATIONS

what they could carry on either with their own capital, or with what they had credit to
borrow of private people in the usual way of bond or mortgage. The banks, they seem
to have thought, were in honour bound to supply the deficiency, and to provide them
with all the capital which they wanted to trade with. The banks, however, were of a
different opinion; and upon their refusing to extend their credits, some of those traders
had recourse to an expedient which, for a time, served their purpose, though at a much
greater expense, yet as effectually as the utmost extension of bank credits could have
done. This expedient was no other than the well known shift of drawing and redrawing;
the shift to which unfortunate traders have sometimes recourse, when they are upon
the brink of bankruptcy. The practice of raising money in this manner had been long
known in England; and, during the course of the late war, when the high profits of
trade afforded a great temptation to over-trading, is said to have been carried on to a
very great extent. From England it was brought into Scotland, where, in proportion to
the very limited commerce, and to the very moderate capital of the country, it was soon
carried on to a much greater extent than it ever had been in England.

The practice of drawing and redrawing is so well known to all men of business,
that it may, perhaps, be thought unnecessary to give any account of it. But as this book
may come into the hands of many people who are not men of business, and as the
effects of this practice upon the banking trade are not, perhaps, generally understood,
even by men of business themselves, I shall endeavour to explain it as distinctly as I
can.

The customs of merchants, which were established when the barbarous laws of
Europe did not enforce the performance of their contracts, and which, during the
course of the two last centuries, have been adopted into the laws of all European
nations, have given such extraordinary privileges to bills of exchange, that money is
more readily advanced upon them than upon any other species of obligation; especially
when they are made payable within so short a period as two or three months after
their date. If, when the bill becomes due, the acceptor does not pay it as soon as it is
presented, he becomes from that moment a bankrupt. The bill is protested, and returns
upon the drawer, who, if he does not immediately pay it, becomes likewise a bankrupt.
If, before it came to the person who presents it to the acceptor for payment, it had
passed through the hands of several other persons, who had successively advanced to
one another the contents of it, either in money or goods, and who, to express that each
of them had in his turn received those contents, had all of them in their order indorsed,
that is, written their names upon the back of the bill; each indorser becomes in his turn
liable to the owner of the bill for those contents, and, if he fails to pay, he becomes
too, from that moment, a bankrupt. Though the drawer, acceptor, and indorsers of the
bill, should all of them be persons of doubtful credit; yet, still the shortness of the date
gives some security to the owner of the bill. Though all of them may be very likely to
become bankrupts, it is a chance if they all become so in so short a time. The house is
crazy, says a weary traveller to himself, and will not stand very long; but it is a chance if
it falls to-night, and I will venture, therefore, to sleep in it to-night.

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ADAM SMITH

The trader A in Edinburgh, we shall suppose, draws a bill upon B in London,
payable two months after date. In reality B in London owes nothing to A in Edinburgh;
but he agrees to accept of A ‘s bill, upon condition, that before the term of payment
he shall redraw upon A in Edinburgh for the same sum, together with the interest and a
commission, another bill, payable likewise two months after date. B accordingly, before
the expiration of the first two months, redraws this bill upon A in Edinburgh; who,
again before the expiration of the second two months, draws a second bill upon B in
London, payable likewise two months after date; and before the expiration of the third
two months, B in London redraws upon A in Edinburgh another bill payable also two
months after date. This practice has sometimes gone on, not only for several months,
but for several years together, the bill always returning upon A in Edinburgh with the
accumulated interest and commission of all the former bills. The interest was five per
cent. in the year, and the commission was never less than one half per cent. on each
draught. This commission being repeated more than six times in the year, whatever
money A might raise by this expedient might necessarily have cost him something
more than eight per cent. in the year and sometimes a great deal more, when either the
price of the commission happened to rise, or when he was obliged to pay compound
interest upon the interest and commission of former bills. This practice was called
raising money by circulation.

In a country where the ordinary profits of stock, in the greater part of mercantile
projects, are supposed to run between six and ten per cent. it must have been a very
fortunate speculation, of which the returns could not only repay the enormous
expense at which the money was thus borrowed for carrying it on, but afford, besides,
a good surplus profit to the projector. Many vast and extensive projects, however, were
undertaken, and for several years carried on, without any other fund to support them
besides what was raised at this enormous expense. The projectors, no doubt, had in
their golden dreams the most distinct vision of this great profit. Upon their awakening,
- however, either at the end of their projects, or when they were no longer able to carry
them on, they very seldom, I believe, had the good fortune to find it.

{The method described in the text was by no means either the most common or the
most expensive one in which those adventurers sometimes raised money by circulation.
It frequently happened, that A in Edinburgh would enable B in London to pay the first
bill of exchange, by drawing, a few days before it became due, a second bill at three
months date upon the same B in London. This bill, being payable to his own order, A
sold in Edinburgh at par; and with its contents purchased bills upon London, payable
at sight to the order of B, to whom he sent them by the post. Towards the end of the
late war, the exchange between Edinburgh and London was frequently three per cent.
against Edinburgh, and those bills at sight must frequently have cost A that premium.
This transaction, therefore, being repeated at least four times in the year, and being
loaded with a commission of at least one half per cent. upon each repetition, must at
that period have cost A, at least, fourteen per cent. in the year. At other times A would
enable to discharge the first bill of exchange, by drawing, a few days before it became

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THE WEALTH OF NATIONS

due, a second bill at two months date, not upon B, but upon some third person, C, for
example, in London. This other bill was made payable to the order of B, who, upon
its being accepted by C, discounted it with some banker in London; and A enabled C
to discharge it, by drawing, a few day’s before it became due, a third bill likewise at two
months date, sometimes upon his first correspondent B, and sometimes upon some
fourth or fifth person, D or E, for example. This third bill was made payable to the
order of C, who, as soon as it was accepted, discounted it in the same manner with
some banker in London. Such operations being repeated at least six times in the year,
and being loaded with a commission of at least one half per cent. upon each repetition,
together with the legal interest of five per cent. this method of raising money, in the
same manner as that described in the text, must have cost A something more than eight
per cent. By saving, however, the exchange between Edinburgh and London, it was less
expensive than that mentioned in the foregoing part of this note; but then it required
an established credit with more houses than one in London, an advantage which many
of these adventurers could not always find it easy to procure.}

The bills which A in Edinburgh drew upon B in London, he regularly discounted
two months before they were due, with some bank or banker in Edinburgh; and the
bills which B in London redrew upon A in Edinburgh, he as regularly discounted,
either with the Bank of England, or with some other banker in London. Whatever was
advanced upon such circulating bills was in Edinburgh advanced in the paper of the
Scotch banks; and in London, when they were discounted at the Bank of England in the
paper of that bank. Though the bills upon which this paper had been advanced were all
of them repaid in their turn as soon as they became due, yet the value which had been
really advanced upon the first bill was never really returned to the banks which advanced
it; because, before each bill became due, another bill was always drawn to somewhat
a greater amount than the bill which was soon to be paid: and the discounting of this
other bill was essentially necessary towards the payment of that which was soon to be
due. This payment, therefore, was altogether fictitious. The stream which, by means of
those circulating bills of exchange, had once been made to run out from the coffers of
the banks, was never replaced by any stream which really ran into them.

The paper which was issued upon those circulating bills of exchange amounted,
upon many occasions, to the whole fund destined for carrying on some vast and
extensive project of agriculture, commerce, or manufactures; and not merely to that part
of it which, had there been no paper money, the projector would have been obliged to
keep by him unemployed, and in ready money, for answering occasional demands. The
greater part of this paper was, consequently, over and above the value of the gold and
silver which would have circulated in the country, had there been no paper money. It
was over and above, therefore, what the circulation of the country could easily absorb
and employ, and upon that account, immediately returned upon the banks, in order to
be exchanged for gold and silver, which they were to find as they could. It was a capital
which those projectors had very artfully contrived to draw from those banks, not only
without theit knowledge or deliberate consent, but for some time, perhaps, without

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their having the most distant suspicion that they had really advanced it.

When two people, who are continually drawing and redrawing upon one another,
discount their bills always with the same banker, he must immediately discover what
they are about, and see clearly that they are trading, not with any capital of their own,
but with the capital which he advances to them. But this discovery is not altogether so
easy when they discount their bills sometimes with one banker, and sometimes with
another, and when the two same persons do not constantly draw and redraw upon one
another, but occasionally run the round of a great circle of projectors, who find it for
their interest to assist one another in this method of raising money and to render it,
upon that account, as difficult as possible to distinguish between a real and a fictitious
bill of exchange, between a bill drawn by a real creditor upon a real debtor, and a bill
for which there was properly no real creditor but the bank which discounted it, nor any
real debtor but the projector who made use of the money. When a banker had even
made this discovery, he might sometimes make it too late, and might find that he had
already discounted the bills of those projectors to so great an extent, that, by refusing to
discount any more, he would necessarily make them all bankrupts; and thus by ruining
them, might perhaps ruin himself. For his own interest and safety, therefore, he might
find it necessary, in this very perilous situation, to go on for some time, endeavouring,
however, to withdraw gradually, and, upon that account, making every day greater and
greater difficulties about discounting, in order to force these projectors by degrees to
have recourse, either to other bankers, or to other methods of raising money: so as that
he himself might, as soon as possible, get out of the circle. The difficulties, accordingly,
which the Bank of England, which the principal bankers in London, and which even
the more prudent Scotch banks began, after a certain time, and when all of them had
already gone too far, to make about discounting, not only alarmed, but enraged, in
the highest degree, those projectors. Their own distress, of which this prudent and
necessary reserve of the banks was, no doubt, the immediate occasion, they called the

-distress of the country; and this distress of the country, they said, was altogether owing
to the ignorance, pusillanimity, and bad conduct of the banks, which did not give a
sufficiently liberal aid to the spirited undertakings of those who exerted themselves in
order to beautify, improve, and enrich the country. It was the duty of the banks, they
seemed to think, to lend for as long a time, and to as great an extent, as they might wish
to borrow. The banks, however, by refusing in this manner to give more credit to those
to whom they had already given a great deal too much, took the only method by which
it was now possible to save either their own credit, or the public credit of the country.

In the midst of this clamour and distress, a new bank was established in Scotland,
for the express purpose of relieving the distress of the country. The design was
generous; but the execution was imprudent, and the nature and causes of the distress
which it meant to relieve, were not, perhaps, well understood. This bank was more
liberal than any other had ever been, both in granting cash-accounts, and in discounting
bills of exchange. With regard to the latter, it seems to have made scarce any distinction
between real and circulating bills, but to have discounted all equally. It was the avowed

THE WEALTH OF NATIONS

principle of this bank to advance upon any reasonable security, the whole capital which
was to be employed in those improvements of which the returns are the most slow and
distant, such as the improvements of land. To promote such improvements was even
said to be the chief of the public-spirited purposes for which it was instituted. By its
liberality in granting cash-accounts, and in discounting bills of exchange, it, no doubt,
issued great quantities of its bank notes. But those bank notes being, the greater part
of them, over and above what the circulation of the country could easily absorb and
employ, returned upon it, in order to be exchanged for gold and silver, as fast as they
were issued. Its coffers were never well filled. The capital which had been subscribed to
this bank, at two different subscriptions, amounted to one hundred and sixty thousand
pounds, of which eighty per cent. only was paid up. This sum ought to have been paid
in at several different instalments. A great part of the proprietors, when they paid in
their first instalment, opened a cash-account with the bank; and the directors, thinking
themselves obliged to treat their own proprietors with the same liberality with which
they treated all other men, allowed many of them to borrow upon this cash-account
what they paid in upon all their subsequent instalments. Such payments, therefore, only
put into one coffer what had the moment before been taken out of another. But had
the coffers of this bank been filled ever so well, its excessive circulation must have
emptied them faster than they could have been replenished by any other expedient but
the ruinous one of drawing upon London; and when the bill became due, paying it,
together with interest and commission, by another draught upon the same place. Its
coffers having been filled so very ill, it is said to have been driven to this resource within
a very few months after it began to do business. The estates of the proprietors of this
bank were worth several millions, and, by their subscription to the original bond or
contract of the bank, were really pledged for answering all its engagements. By means
of the great credit which so great a pledge necessarily gave it, it was, notwithstanding
its too liberal conduct, enabled to carry on business for more than two years. When it
was obliged to stop, it had in the circulation about two hundred thousand pounds in
bank notes. In order to support the circulation of those notes, which were continually
returning upon it as fast as they were issued, it had been constantly in the practice
of drawing bills of exchange upon London, of which the number and value were
continually increasing, and, when it stopt, amounted to upwards of six hundred
thousand pounds. This bank, therefore, had, in little more than the course of two
years, advanced to different people upwards of eight hundred thousand pounds at
five per cent. Upon the two hundred thousand pounds which it circulated in bank
notes, this five per cent. might perhaps be considered as a clear gain, without any other
deduction besides the expense of management. But upon upwards of six hundred
thousand pounds, for which it was continually drawing bills of exchange upon London,
it was paying, in the way of interest and commission, upwards of eight per cent. and
was consequently losing more than three per cent. upon more than three fourths of all
its dealings.

The operations of this bank seem to have produced effects quite opposite to those

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which were intended by the particular persons who planned and directed it. They seem
to have intended to support the spirited undertakings, for as such they considered
them, which were at that time carrying on in different parts of the country; and, at the
same time, by drawing the whole banking business to themselves, to supplant all the
other Scotch banks, particularly those established at Edinburgh, whose backwardness
in discounting bills of exchange had given some offence. This bank, no doubt, gave
some temporary relief to those projectors, and enabled them to carry on their projects
for about two years longer than they could otherwise have done. But it thereby only
enabled them to get so much deeper into debt; so that, when ruin came, it fell so
much the heavier both upon them and upon their creditors. The operations of this
bank, therefore, instead of relieving, in reality aggravated in the long-run the distress
which those projectors had brought both upon themselves and upon their country. It
would have been much better for themselves, their creditors, and their country, had
the greater part of them been obliged to stop two years sooner than they actually did.
The temporary relief, however, which this bank afforded to those projectors, proved
a real and permanent relief to the other Scotch banks. All the dealers in circulating
bills of exchange, which those other banks had become so backward in discounting,
had recourse to this new bank, where they were received with open arms. Those other
banks, therefore, were enabled to get very easily out of that fatal circle, from which they
could not otherwise have disengaged themselves without incurring a considerable loss,
and perhaps, too, even some degree of discredit.

In the long-run, therefore, the operations of this bank increased the real distress
of the country, which it meant to relieve; and effectually relieved, from a very great
distress, those rivals whom it meant to supplant.

At the first setting out of this bank, it was the opinion of some people, that how
fast soever its coffers might be emptied, it might easily replenish them, by raising
money upon the securities of those to whom it had advanced its paper. Experience, I
_ believe, soon convinced them that this method of raising money was by much too slow
to answer their purpose; and that coffers which originally were so ill filled, and which
emptied themselves so very fast, could be replenished by no other expedient but the
ruinous one of drawing bills upon London, and when they became due, paying them
by other draughts on the same place, with accumulated interest and commission. But
though they had been able by this method to raise money as fast as they wanted it, yet,
instead of making a profit, they must have suffered a loss of every such operation; so
that in the long-run they must have ruined themselves as a mercantile company, though
perhaps not so soon as by the more expensive practice of drawing and redrawing.
They could still have made nothing by the interest of the paper, which, being over and
above what the circulation of the country could absorb and employ, returned upon
them in order to be exchanged for gold and silver, as fast as they issued it; and for the
payment of which they were themselves continually obliged to borrow money. On the
contrary, the whole expense of this borrowing, of employing agents to look out for
people who had money to lend, of negotiating with those people, and of drawing the

Jon)

THE WEALTH OF NATIONS

proper bond or assignment, must have fallen upon them, and have been so much clear
loss upon the balance of their accounts. The project of replenishing their coffers in
this manner may be compared to that of a man who had a water-pond from which a
stream was continually running out, and into which no stream was continually running,
but who proposed to keep it always equally full, by employing a number of people to
go continually with buckets to a well at some miles distance, in order to bring water to
replenish it.

But though this operation had proved not only practicable, but profitable to the
bank, as a mercantile company; yet the country could have derived no benefit front it,
but, on the contrary, must have suffered a very considerable loss by it. This operation
could not augment, in the smallest degree, the quantity of money to be lent. It could
only have erected this bank into a sort of general loan office for the whole country.
Those who wanted to borrow must have applied to this bank, instead of applying to
the private persons who had lent it their money. But a bank which lends money, perhaps
to five hundred different people, the greater part of whom its directors can know very
little about, is not likely to be more judicious in the choice of its debtors than a private
person who lends out his money among a few people whom he knows, and in whose
sober and frugal conduct he thinks he has good reason to confide. The debtors of such
a bank as that whose conduct I have been giving some account of were likely, the greater
part of them, to be chimerical projectors, the drawers and redrawers of circulating
bills of exchange, who would employ the money in extravagant undertakings, which,
with all the assistance that could be given them, they would probably never be able
to complete, and which, if they should be completed, would never repay the expense
which they had really cost, would never afford a fund capable of maintaining a quantity
of labour equal to that which had been employed about them. The sober and frugal
debtors of private persons, on the contrary, would be more likely to employ the money
borrowed in sober undertakings which were proportioned to their capitals, and which,
though they might have less of the grand and the marvellous, would have more of the
solid and the profitable; which would repay with a large profit whatever had been laid
out upon them, and which would thus afford a fund capable of maintaining a much
greater quantity of labour than that which had been employed about them. The success
of this operation, therefore, without increasing in the smallest degree the capital of the
country, would only have transferred a great part of it from prudent and profitable to
imprudent and unprofitable undertakings.

That the industry of Scotland languished for want of money to employ it, was
the opinion of the famous Mr Law. By establishing a bank of a particular kind, which
he seems to have imagined might issue paper to the amount of the whole value of all
the lands in the country, he proposed to remedy this want of money. The parliament
of Scotland, when he first proposed his project, did not think proper to adopt it. It
was afterwards adopted, with some variations, by the Duke of Orleans, at that time
regent of France. The idea of the possibility of multiplying paper money to almost
any extent was the real foundation of what is called the Mississippi scheme, the most

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ADAM SMITH

extravagant project, both of banking and stock-jobbing, that perhaps the world ever
saw. The different operations of this scheme are explained so fully, so clearly, and
with so much order and distinctness, by Mr Du Verney, in his Examination of the
Political Reflections upon commerce and finances of Mr Du Tot, that I shall not give
any account of them. The principles upon which it was founded are explained by
Mr Law himself, in a discourse concerning money and trade, which he published in
Scotland when he first proposed his project. The splendid but visionary ideas which are
set forth in that and some other works upon the same principles, still continue to make
an impression upon many people, and have, perhaps, in part, contributed to that excess
of banking, which has of late been complained of, both in Scotland and in other places.

The Bank of England is the greatest bank of circulation in Europe. It was
incorporated, in pursuance of an act of parliament, by a charter under the great
seal, dated the 27th of July 1694. It at that time advanced to government the sum of
£1,200,000 for an annuity of £100,000, or for £ 96,000 a-year, interest at the rate of
eight per cent. and £4,000 year for the expense of management. The credit of the new
government, established by the Revolution, we may believe, must have been very low,
when it was obliged to borrow at so high an interest.

In 1697, the bank was allowed to enlarge its capital stock, by an ingraftment of
£1,001,171:10s. Its whole capital stock, therefore, amounted at this time to £2,201,171:
10s. This ingraftment is said to have been for the support of public credit. In 1696,
tallies had been at forty, and fifty, and sixty, per cent. discount, and bank notes at twenty
per cent. {James Postlethwaite’s History of the Public Revenue, p.301.} During the
great re-coinage of the silver, which was going on at this time, the bank had thought
proper to discontinue the payment of its notes, which necessarily occasioned their
discredit.

In pursuance of the 7th Anne, c. 7, the bank advanced and paid into the exchequer
the sum of £400,000; making in all the sum of £1,600,000, which it had advanced

-upon its original annuity of £96,000 interest, and £4,000 for expense of management.
In 1708, therefore, the credit of government was as good as that of private persons,
since it could borrow at six per cent. interest, the common legal and market rate of
those times. In pursuance of the same act, the bank cancelled exchequer bills to the
amount of £ 1,775,027: 17s: 102d. at six per cent. interest, and was at the same time
allowed to take in subscriptions for doubling its capital. In 1703, therefore, the capital
of the bank amounted to (4,402,343; and it had advanced to government the sum of
8 O27 -1k:1 0d:

By a call of fifteen per cent. in 1709, there was paid in, and made stock, £
656,204:1:9d.; and by another of ten per cent. in 1710, £501,448:12:11d. In consequence
of those two calls, therefore, the bank capital amounted to £/ 5,559,995:14:8d.

In pursuance of the 3rd George I. c.8, the bank delivered up two millions of
exchequer Bills to be cancelled. It had at this time, therefore, advanced to government
£5,375,027:17 10d. In pursuance of the 8th George L. c.21, the bank purchased of the
South-sea company, stock to the amount of £4,000,000: and in 1722, in consequence

231

THE WEALTH OF NATIONS

of the subscriptions which it had taken in for enabling it to make this purchase, its
capital stock was increased by £ 3,400,000. At this time, therefore, the bank had
advanced to the public £ 9,375,027 17s. 10’/2d.; and its capital stock amounted only to £
8,959,995:14:8d. It was upon this occasion that the sum which the bank had advanced
to the public, and for-which it received interest, began first to exceed its capital stock,
or the sum for which it paid a dividend to the proprietors of bank stock; or, in other
words, that the bank began to have an undivided capital, over and above its divided
one. It has continued to have an undivided capital of the same kind ever since. In 1746,
the bank had, upon different occasions, advanced to the public £11,686,800, and its
divided capital had been raised by different calls and subscriptions to £ 10,780,000. The
state of those two sums has continued to be the same ever since. In pursuance of the
4th of George III. c.25, the bank agreed to pay to government for the renewal of its
charter £110,000, without interest or re-payment. This sum, therefore did not increase
either of those two other sums.

The dividend of the bank has varied according to the variations in the rate of the
interest which it has, at different times, received for the money it had advanced to the
public, as well as according to other circumstances. This rate of interest has gradually
been reduced from eight to three per cent. For some years past, the bank dividend has
been at five and a half per cent.

The stability of the bank of England is equal to that of the British government.
All that it has advanced to the public must be lost before its creditors can sustain any
loss. No other banking company in England can be established by act of parliament,
or can consist of more than six members. It acts, not only as an ordinary bank, but
as a great engine of state. It receives and pays the greater part of the annuities which
are due to the creditors of the public; it circulates exchequer bills; and it advances to
government the annual amount of the land and malt taxes, which are frequently not
paid up till some years thereafter. In these different operations, its duty to the public
may sometimes have obliged it, without any fault of its directors, to overstock the
circulation with paper money. It likewise discounts merchants’ bills, and has, upon
several different occasions, supported the credit of the principal houses, not only of
England, but of Hamburgh and Holland. Upon one occasion, in 1763, it is said to
have advanced for this purpose, in one week, about £1,600,000, a great part of it in
bullion. I do not, however, pretend to warrant either the greatness of the sum, or the
shortness of the time. Upon other occasions, this great company has been reduced to
the necessity of paying in sixpences.

Itis not by augmenting the capital of the country, but by rendering a greater part of
that capital active and productive than would otherwise be so, that the most judicious
operations of banking can increase the industry of the country. That part of his capital
which a dealer is obliged to keep by him unemployed and in ready money, for answering
occasional demands, is so much dead stock, which, so long as it remains in this situation,
produces nothing, either to him or to his country. The judicious operations of banking
enable him to convert this dead stock into active and productive stock; into materials

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to work upon; into tools to work with; and into provisions and subsistence to work
for; into stock which produces something both to himself and to his country. The gold
and silver money which circulates in any country, and by means of which, the produce
of its land and labour is annually circulated and distributed to the proper consumers,
is, in the same manner as the ready money of the dealer, all dead stock. It is a very
valuable part of the capital of the country, which produces nothing to the country. The
judicious operations of banking, by substituting paper in the room of a great part of
this gold and silver, enable the country to convert a great part of this dead stock into
active and productive stock; into stock which produces something to the country. The
gold and silver money which circulates in any country may very properly be compared
to a highway, which, while it circulates and carries to market all the grass and corn of
the country, produces itself not a single pile of either. The judicious operations of
banking, by providing, if I may be allowed so violent a metaphor, a sort of waggon-way
through the air, enable the country to convert, as it were, a great part of its highways
into good pastures, and corn fields, and thereby to increase, very considerably, the
annual produce of its land and labour. The commerce and industry of the country,
however, it must be acknowledged, though they may be somewhat augmented, cannot
be altogether so secure, when they are thus, as it were, suspended upon the Daedalian
wings of paper money, as when they travel about upon the solid ground of gold and
silver. Over and above the accidents to which they are exposed from the unskilfulness
of the conductors of this paper money, they are liable to several others, from which no
prudence or skill of those conductors can guard them.

An unsuccessful war, for example, in which the enemy got possession of the capital,
and consequently of that treasure which supported the credit of the paper money,
would occasion a much greater confusion in a country where the whole circulation was
carried on by paper, than in one where the greater part of it was carried on by gold and
_ silver. The usual instrument of commerce having lost its value, no exchanges could be
made but either by barter or upon credit. All taxes having been usually paid in paper
money, the prince would not have wherewithal either to pay his troops, or to furnish
his magazines; and the state of the country would be much more irretrievable than if
the greater part of its circulation had consisted in gold and silver. A prince, anxious to
maintain his dominions at all times in the state in which he can most easily defend them,
ought upon this account to guard not only against that excessive multiplication of paper
money which ruins the very banks which issue it, but even against that multiplication
of it which enables them to fill the greater part of the circulation of the country with it.

The circulation of every country may be considered as divided into two different
branches; the circulation of the dealers with one another, and the circulation between
the dealers and the consumers. Though the same pieces of money, whether paper or
metal, may be employed sometimes in the one circulation and sometimes in the other;
yet as both are constantly going on at the same time, each requires a certain stock
of money, of one kind or another, to carry it on. The value of the goods circulated
between the different dealers never can exceed the value of those circulated between the

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THE WEALTH OF NATIONS

dealers and the consumers; whatever is bought by the dealers being ultimately destined
to be sold to the consumers. The circulation between the dealers, as it is carried on
by wholesale, requires generally a pretty large sum for every particular transaction.
That between the dealers and the consumers, on the contrary, as it is generally carried
on by retail, frequently requires but very small ones, a shilling, or even a halfpenny,
being often sufficient. But small sums circulate much faster than large ones. A shilling
changes masters more frequently than a guinea, and a halfpenny more frequently than
a shilling. Though the annual purchases of all the consumers, therefore, are at least
equal in value to those of all the dealers, they can generally be transacted with a much
smaller quantity of money; the same pieces, by a more rapid circulation, serving as the
instrument of many more purchases of the one kind than of the other.

Paper money may be so regulated as either to confine itself very much to the
circulation between the different dealers, or to extend itself likewise to a great part of
that between the dealers and the consumers. Where no bank notes are circulated under
£10 value, as in London, paper money confines itself very much to the circulation
between the dealers. When a ten pound bank note comes into the hands of a consumer,
he is generally obliged to change it at the first shop where he has occasion to purchase
five shillings worth of goods; so that it often returns into the hands of a dealer before
the consumer has spent the fortieth part of the money. Where bank notes are issued
for so small sums as 20s. as in Scotland, paper money extends itself to a considerable
part of the circulation between dealers and consumers. Before the Act of parliament
which put a stop to the circulation of ten and five shilling notes, it filled a still greater
part of that circulation. In the currencies of North America, paper was commonly
issued for so small a sum as a shilling, and filled almost the whole of that circulation. In
some paper currencies of Yorkshire, it was issued even for so small a sum as a sixpence.

Where the issuing of bank notes for such very small sums is allowed, and commonly
practised, many mean people are both enabled and encouraged to become bankers. A
person whose promissory note for £5, or even for 20s. would be rejected by every
body, will get it to be received without scruple when it is issued for so small a sum as
a sixpence. But the frequent bankruptcies to which such beggarly bankers must be
liable, may occasion a very considerable inconveniency, and sometimes even a very
great calamity, to many poor people who had received their notes in payment.

It were better, perhaps, that no bank notes were issued in any part of the kingdom
for a smaller sum than £5. Paper money would then, probably, confine itself, in every
part of the kingdom, to the circulation between the different dealers, as much as it does
at present in London, where no bank notes are issued under £10 value; £5 being, in
most part of the kingdom, a sum which, though it will purchase, perhaps, little more
than half the quantity of goods, is as much considered, and is as seldom spent all at
once, as £10 are amidst the profuse expense of London.

Where paper money, it is to be observed, is pretty much confined to the circulation
between dealers and dealers, as at London, there is always plenty of gold and silver.
Where it extends itself to a considerable part of the circulation between dealers and

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consumers, as in Scotland, and still more in North America, it banishes gold and silver
almost entirely from the country; almost all the ordinary transactions of its intetior
commerce being thus carried on by paper. The suppression of ten and five shilling
bank notes, somewhat relieved the scarcity of gold and silver in Scotland; and the
suppression of twenty shilling notes will probably relieve it still more. Those metals
are said to have become more abundant in America, since the suppression of some of
their paper currencies. They are said, likewise, to have been more abundant before the
institution of those currencies.

Though paper money should be pretty much confined to the circulation between
dealers and dealers, yet banks and bankers might still be able to give nearly the same
assistance to the industry and commerce of the country, as they had done when paper
money filled almost the whole circulation. The ready money which a dealer is obliged
to keep by him, for answering occasional demands, is destined altogether for the
circulation between himself and other dealers of whom he buys goods. He has no
occasion to keep any by him for the circulation between himself and the consumers,
who are his customers, and who bring ready money to him, instead of taking any from
him. Though no paper money, therefore, was allowed to be issued, but for such sums
as would confine it pretty much to the circulation between dealers and dealers; yet
partly by discounting real bills of exchange, and partly by lending upon cash-accounts,
banks and bankers might still be able to relieve the greater part of those dealers from
the necessity of keeping any considerable part of their stock by them unemployed, and
in ready money, for answering occasional demands. They might still be able to give the
utmost assistance which banks and bankers can with propriety give to traders of every
kind.

To restrain private people, it may be said, from receiving in payment the promissory
notes of a banker for any sum, whether great or small, when they themselves are
_ willing to receive them; or, to restrain a banker from issuing such notes, when all his
neighbours are willing to accept of them, is a manifest violation of that natural liberty,
which it is the proper business of law not to infringe, but to support. Such regulations
may, no doubt, be considered as in some respect a violation of natural liberty. But those
exertions of the natural liberty of a few individuals, which might endanger the security
of the whole society, are, and ought to be, restrained by the laws of all governments; of
the most free, as well as or the most despotical. The obligation of building party walls,
in order to prevent the communication of fire, is a violation of natural liberty, exactly
of the same kind with the regulations of the banking trade which are here proposed.

A paper money, consisting in bank notes, issued by people of undoubted credit,
payable upon demand, without any condition, and, in fact, always readily paid as soon
as presented, is, in every respect, equal in value to gold and silver money, since gold and
silver money can at anytime be had for it. Whatever is either bought or sold for such
paper, must necessarily be bought or sold as cheap as it could have been for gold and
silver.

The increase of papet money, it has been said, by augmenting the quantity, and

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THE WEALTH OF NATIONS

consequently diminishing the value, of the whole currency, necessarily augments the
money price of commodities. But as the quantity of gold and silver, which is taken
from the currency, is always equal to the quantity of paper which is added to it, paper
money does not necessarily increase the quantity of the whole currency. From the
beginning of the last century to the present time, provisions never were cheaper in
Scotland than in 1759, though, from the circulation of ten and five shilling bank notes,
there was then more paper money in the country than at present. The proportion
between the price of provisions in Scotland and that in England is the same now
as before the great multiplication of banking companies in Scotland. Corn is, upon
most occasions, fully as cheap in England as in France, though there is a great deal of
paper money in England, and scarce any in France. In 1751 and 1752, when Mr Hume
published his Political Discourses, and soon after the great multiplication of paper
money in Scotland, there was a very sensible rise in the price of provisions, owing,
probably, to the badness of the seasons, and not to the multiplication of paper money.

It would be otherwise, indeed, with a paper money, consisting in promissory notes,
of which the immediate payment depended, in any respect, either upon the good will
of those who issued them, or upon a condition which the holder of the notes might
not always have it in his power to fulfil, or of which the payment was not exigible
till after a certain number of years, and which, in the mean time, bore no interest.
Such a paper money would, no doubt, fall more or less below the value of gold and
silver, according as the difficulty or uncertainty of obtaining immediate payment was
supposed to be greater or less, or according to the greater or less distance of time at
which payment was exigible.

Some years ago the different banking companies of Scotland were in the practice
of inserting into their bank notes, what they called an optional clause; by which they
promised payment to the bearer, either as soon as the note should be presented, or, in
the option of the directors, six months after such presentment, together with the legal
interest for the said six months. The directors of some of those banks sometimes took
advantage of this optional clause, and sometimes threatened those who demanded
gold and silver in exchange for a considerable number of their notes, that they would
take advantage of it, unless such demanders would content themselves with a part of
what they demanded. The promissory notes of those banking companies constituted,
at that time, the far greater part of the currency of Scotland, which this uncertainty
of payment necessarily degraded below value of gold and silver money. During the
continuance of this abuse (which prevailed chiefly in 1762, 1763, and 1764), while the
exchange between London and Carlisle was at par, that between London and Dumfries
would sometimes be four per cent. against Dumfries, though this town is not thirty
miles distant from Carlisle. But at Carlisle, bills were paid in gold and silver; whereas
at Dumfries they were paid in Scotch bank notes; and the uncertainty of getting these
bank notes exchanged for gold and silver coin, had thus degraded them four per cent.
below the value of that coin. The same act of parliament which suppressed ten and
five shilling bank notes, suppressed likewise this optional clause, and thereby restored

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the exchange between England and Scotland to its natural rate, or to what the course
of trade and remittances might happen to make it.

In the paper currencies of Yorkshire, the payment of so small a sum as 6d.
sometimes depended upon the condition, that the holder of the note should bring the
change of a guinea to the person who issued it; a condition which the holders of such
notes might frequently find it very difficult to fulfil, and which must have degraded this
currency below the value of gold and silver money. An act of parliament, accordingly,
declared all such clauses unlawful, and suppressed, in the same manner as in Scotland,
all promissory notes, payable to the bearer, under 20s. value.

The paper currencies of North America consisted, not in bank notes payable to
the bearer on demand, but in a government paper, of which the payment was not
exigible till several years after it was issued; and though the colony governments paid
no interest to the holders of this paper, they declared it to be, and in fact rendered it,
a legal tender of payment for the full value for which it was issued. But allowing the
colony security to be perfectly good, £100, payable fifteen years hence, for example, in
a country where interest is at six per cent., is worth little more than £40 ready money.
To oblige a creditor, therefore, to accept of this as full payment for a debt of £100,
actually paid down in ready money, was an act of such violent injustice, as has scarce,
perhaps, been attempted by the government of any other country which pretended
to be free. It bears the evident marks of having originally been, what the honest and
downright Doctor Douglas assures us it was, a scheme of fraudulent debtors to cheat
their creditors. The government of Pennsylvania, indeed, pretended, upon their first
emission of paper money, in 1722, to render their paper of equal value with gold and
silver, by enacting penalties against all those who made any difference in the price of
their goods when they sold them for a colony paper, and when they sold them for gold
and silver, a regulation equally tyrannical, but much less, effectual, than that which it

was meant to support. A positive law may render a shilling a legal tender for a guinea,
"because it may direct the courts of justice to discharge the debtor who has made that
tender; but no positive law can oblige a person who sells goods, and who is at liberty
to sell or not to sell as he pleases, to accept of a shilling as equivalent to a guinea in
the price of them. Notwithstanding any regulation of this kind, it appeared, by the
course of exchange with Great Britain, that £100 sterling was occasionally considered
as equivalent, in some of the colonies, to £130, and in others to so great a sum as
£1100 currency; this difference in the value arising from the difference in the quantity
of paper emitted in the different colonies, and in the distance and probability of the
term of its final discharge and redemption.

No law, therefore, could be more equitable than the act of parliament, so unjustly
complained of in the colonies, which declared, that no paper currency to be emitted
there in time coming, should be a legal tender of payment.

Pennsylvania was always more moderate in its emissions of paper money than
any other of our colonies. Its paper currency, accordingly, is said never to have sunk
below the value of the gold and silver which was current in the colony before the

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THE WEALTH OF NATIONS ©

first emission of its paper money. Before that emission, the colony had raised the
denomination of its coin, and had, by act of assembly, ordered 5s. sterling to pass in the
colonies for 6s:3d., and afterwards for 6s:8d. A pound, colony currency, therefore, even
when that currency was gold and silver, was more than thirty per cent. below the value
of £1 sterling; and when that currency was turned into paper, it was seldom much more
than thirty per cent. below that value. The pretence for raising the denomination of the
coin was to prevent the exportation of gold and silver, by making equal quantities of
those metals pass for greater sums in the colony than they did in the mother country. It
was found, however, that the price of all goods from the mother country rose exactly
in proportion as they raised the denomination of their coin, so that their gold and silver
were exported as fast as ever.

The paper of each colony being received in the payment of the provincial taxes,
for the full value for which it had been issued, it necessarily derived from this use some
additional value, over and above what it would have had, from the real or supposed
distance of the term of its final discharge and redemption. This additional value was
greater or less, according as the quantity of paper issued was more or less above what
could be employed in the payment of the taxes of the particular colony which issued
it. It was in all the colonies very much above what could be employed in this manner.

A prince, who should enact that a certain proportion of his taxes should be paid
in a paper money of a certain kind, might thereby give a certain value to this paper
money, even though the term of its final discharge and redemption should depend
altogether upon the will of the prince. If the bank which issued this paper was careful
to keep the quantity of it always somewhat below what could easily be employed in this
manner, the demand for it might be such as to make it even bear a premium, or sell for
somewhat more in the market than the quantity of gold or silver currency for which it
was issued. Some people account in this manner for what is called the agio of the bank
of Amsterdam, or for the superiority of bank money over current money, though this
bank money, as they pretend, cannot be taken out of the bank at the will of the owner.
The greater part of foreign bills of exchange must be paid in bank money, that is, by a
transfer in the books of the bank; and the directors of the bank, they allege, are careful
to keep the whole quantity of bank money always below what this use occasions a
demand for. It is upon this account, they say, the bank money sells for a premium, or
bears an agio of four or five per cent. above the same nominal sum of the gold and
silver currency of the country. This account of the bank of Amsterdam, however, it
will appear hereafter, is in a great measure chimerical.

A paper currency which falls below the value of gold and silver coin, does not
thereby sink the value of those metals, or occasion equal quantities of them to exchange
for a smaller quantity of goods of any other kind. The proportion between the value
of gold and silver and that of goods of any other kind, depends in all cases, not upon
the nature and quantity of any particular paper money, which may be current in any
particular country, but upon the richness or poverty of the mines, which happen at any
particular time to supply the great market of the commercial world with those metals.

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It depends upon the proportion between the quantity of labour which is necessary
in order to bring a certain quantity of gold and silver to market, and that which is
necessary in order to bring thither a certain quantity of any other sort of goods.

If bankers are restrained from issuing any circulating bank notes, or notes payable
to the bearer, for less than a certain sum; and if they are subjected to the obligation of
an immediate and unconditional payment of such bank notes as soon as presented, their
trade may, with safety to the public, be rendered in all other respects perfectly free. The
late multiplication of banking companies in both parts of the united kingdom, an event
by which many people have been much alarmed, instead of diminishing, increases the
security of the public. It obliges all of them to be more circumspect in their conduct,
and, by not extending their currency beyond its due proportion to their cash, to guard
themselves against those malicious runs, which the rivalship of so many competitors is
always ready to bring upon them. It restrains the circulation of each particular company
within a narrower circle, and reduces their circulating notes to a smaller number. By
dividing the whole circulation into a greater number of parts, the failure of any one
company, an accident which, in the course of things, must sometimes happen, becomes
of less consequence to the public. This free competition, too, obliges all bankers to be
more liberal in their dealings with their customers, lest their rrvals should carry them
away. In general, if any branch of trade, or any division of labour, be advantageous to
the public, the freer and more general the competition, it will always be the more so.

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CHAPTER III.

OF THE ACCUMULATION OF
CAPITAL, OR OF PRODUCTIVE
AND UNPRODUCTIVE LABOUR.

here is one sort of labour which adds to the value of the subject upon which it is
fl Pree there is another which has no such effect. The former as it produces a
value, may be called productive, the latter, unproductive labour. {Some French authors
of great learning and ingenuity have used those words in a different sense. In the last
chapter of the fourth book, I shall endeavour to shew that their sense is an improper
one.} Thus the labour of a manufacturer adds generally to the value of the materials
which he works upon, that of his own maintenance, and of his master’s profit. The
labour of a menial servant, on the contrary, adds to the value of nothing. Though the
manufacturer has his wages advanced to him by his master, he in reality costs him no
expense, the value of those wages being generally restored, together with a profit, in the
improved value of the subject upon which his labour is bestowed. But the maintenance
of a menial servant never is restored. A man grows rich by employing a multitude
of manufacturers; he grows poor by maintaining a multitude or menial servants. The
labour of the latter, however, has its value, and deserves its reward as well as that of the
former. But the labour of the manufacturer fixes and realizes itself in some particular
subject or vendible commodity, which lasts for some time at least after that labour is
past. It is, as it were, a certain quantity of labour stocked and stored up, to be employed,
if necessary, upon some other occasion. That subject, or, what is the same thing, the
price of that subject, can afterwards, if necessary, put into motion a quantity of labour
equal to that which had originally produced it. The labour of the menial servant, on the
contrary, does not fix or realize itself in any particular subject or vendible commodity.
His services generally perish in the very instant of their performance, and seldom leave
any trace of value behind them, for which an equal quantity of service could afterwards
be procured.

The labour of some of the most respectable orders in the society is, like that of
menial servants, unproductive of any value, and does not fix or realize itself in any
permanent subject, or vendible commodity, which endures after that labour is past, and
for which an equal quantity of labour could afterwards be procured. The sovereign,
for example, with all the officers both of justice and war who serve under him, the

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whole army and navy, are unproductive labourers. They are the servants of the public,
and are maintained by a part of the annual produce of the industry of other people.
Their service, how honourable, how useful, or how necessary soever, produces nothing
for which an equal quantity of service can afterwards be procured. The protection,
security, and defence, of the commonwealth, the effect of their labour this year, will
not purchase its protection, security, and defence, for the year to come. In the same
class must be ranked, some both of the gravest and most important, and some of
the most frivolous professions; churchmen, lawyers, physicians, men of letters of all
kinds; players, buffoons, musicians, opera-singers, opera-dancers, etc. The labour of
the meanest of these has a certain value, regulated by the very same principles which
regulate that of every other sort of labour; and that of the noblest and most useful,
produces nothing which could afterwards purchase or procure an equal quantity of
labour. Like the declamation of the actor, the harangue of the orator, or the tune of
the musician, the work of all of them perishes in the very instant of its production.

Both productive and unproductive labourers, and those who do not labour at all,
are all equally maintained by the annual produce of the land and labour of the country.
This produce, how great soever, can never be infinite, but must have certain limits.
According, therefore, as a smaller or greater proportion of itis in any one year employed
in maintaining unproductive hands, the more in the one case, and the less in the other,
will remain for the productive, and the next year’s produce will be greater or smaller
accordingly; the whole annual produce, if we except the spontaneous productions of
the earth, being the effect of productive labour.

Though the whole annual produce of the land and labour of every country is no
doubt ultimately destined for supplying the consumption of its inhabitants, and for
procuring a revenue to them; yet when it first comes either from the ground, or from
the hands of the productive labourers, it naturally divides itself into two parts. One of
them, and frequently the largest, is, in the first place, destined for replacing a capital, or

for renewing the provisions, materials, and finished work, which had been withdrawn
from a capital; the other for constituting a revenue either to the owner of this capital,
as the profit of his stock, or to some other person, as the rent of his land. Thus, of the
produce of land, one part replaces the capital of the farmer; the other pays his profit
and the rent of the landlord; and thus constitutes a revenue both to the owner of this
capital, as the profits of his stock, and to some other person as the rent of his land. Of
the produce of a great manufactory, in the same manner, one part, and that always the
largest, replaces the capital of the undertaker of the work; the other pays his profit, and
thus constitutes a revenue to the owner of this capital.

That part of the annual produce of the land and labour of any country which
replaces a capital, never is immediately employed to maintain any but productive hands.
It pays the wages of productive labour only. That which is immediately destined for
constituting a revenue, either as profit or as rent, may maintain indifferently either
productive or unproductive hands.

Whatever part of his stock a man employs as a capital, he always expects it to be

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THE WEALTH OF NATIONS

replaced to him with a profit. He employs it, therefore, in maintaining productive hands
only; and after having served in the function of a capital to him, it constitutes a revenue
to them. Whenever he employs any part of it in maintaining unproductive hands of any
kind, that part is from that moment withdrawn from his capital, and placed in his stock
reserved for immediate consumption.

Unproductive labourers, and those who do not labour at all, are all maintained by
revenue; either, first, by that part of the annual produce which is originally destined
for constituting a revenue to some particular persons, either as the rent of land, or as
the profits of stock; or, secondly, by that part which, though originally destined for
replacing a capital, and for maintaining productive labourers only, yet when it comes
into their hands, whatever part of it is over and above their necessary subsistence,
may be employed in maintaining indifferently either productive or unproductive hands.
Thus, not only the great landlord or the rich merchant, but even the common workman,
if his wages are considerable, may maintain a menial servant; or he may sometimes go
to a play or a puppet-show, and so contribute his share towards maintaining one set of
unproductive labourers; or he may pay some taxes, and thus help to maintain another
set, more honourable and useful, indeed, but equally unproductive. No part of the
annual produce, however, which had been originally destined to replace a capital, is
ever directed towards maintaining unproductive hands, till after it has put into motion
its full complement of productive labour, or all that it could put into motion in the way
in which it was employed. The workman must have earned his wages by work done,
before he can employ any part of them in this manner. That part, too, is generally but
a small one. It is his spare revenue only, of which productive labourers have seldom
a great deal. They generally have some, however; and in the payment of taxes, the
greatness of their number may compensate, in some measure, the smallness of their
contribution. The rent of land and the profits of stock are everywhere, therefore, the
principal sources from which unproductive hands derive their subsistence. These are
the two sorts of revenue of which the owners have generally most to spare. They
might both maintain indifferently, either productive or unproductive hands. They seem,
however, to have some predilection for the latter. The expense of a great lord feeds
generally more idle than industrious people. The rich merchant, though with his capital
he maintains industrious people only, yet by his expense, that is, by the employment of
his revenue, he feeds commonly the very same sort as the great lord.

The proportion, therefore, between the productive and unproductive hands,
depends very much in every country upon the proportion between that part of the
annual produce, which, as soon as it comes either from the ground, or from the hands
of the productive labourers, is destined for replacing a capital, and that which is destined
for constituting a revenue, either as rent or as profit. This proportion is very different
in rich from what it is in poor countries.

Thus, at present, in the opulent countries of Europe, a very large, frequently the
largest, portion of the produce of the land, is destined for replacing the capital of
the rich and independent farmer; the other for paying his profits, and the rent of the

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landlord. But anciently, during the prevalency of the feudal government, a very small
portion of the produce was sufficient to replace the capital employed in cultivation. It
consisted commonly in a few wretched cattle, maintained altogether by the spontaneous
produce of uncultivated land, and which might, therefore, be considered as a part of
that spontaneous produce. It generally, too, belonged to the landlord, and was by him
advanced to the occupiers of the land. All the rest of the produce properly belonged to
him too, either as rent for his land, or as profit upon this paltry capital. The occupiers
of land were generally bond-men, whose persons and effects were equally his property.
Those who were not bond-men were tenants at will; and though the rent which they
paid was often nominally little more than a quit-rent, it really amounted to the whole
produce of the land. Their lord could at all times command their labour in peace and
their service in war. Though they lived at a distance from his house, they were equally
dependent upon him as his retainers who lived in it. But the whole produce of the
land undoubtedly belongs to him, who can dispose of the labour and service of all
those whom it maintains. In the present state of Europe, the share of the landlord
seldom exceeds a third, sometimes not a fourth part of the whole produce of the land.
The rent of land, however, in all the improved parts of the country, has been tripled
and quadrupled since those ancient times; and this third or fourth part of the annual
produce is, it seems, three or four times greater than the whole had been before. In
the progress of improvement, rent, though it increases in proportion to the extent,
diminishes in proportion to the produce of the land.

In the opulent countries of Europe, great capitals are at present employed in trade
and manufactures. In the ancient state, the little trade that was stirring, and the few
homely and coarse manufactures that were carried on, required but very small capitals.
These, however, must have yielded very large profits. The rate of interest was nowhere
less than ten per cent. and their profits must have been sufficient to afford this great
interest. At present, the rate of interest, in the improved parts of Europe, is nowhere
higher than six per cent.; and in some of the most improved, it is so low as four, three,
and two per cent. Though that part of the revenue of the inhabitants which is derived
from the profits of stock, is always much greater in rich than in poor countries, it is
because the stock is much greater; in proportion to the stock, the profits are generally
much less.

That part of the annual produce, therefore, which, as soon as it comes either from
the ground, or from the hands of the productive labourers, is destined for replacing
a capital, is not only much greater in rich than in poor countries, but bears a much
greater proportion to that which is immediately destined for constituting a revenue
either as rent or as profit. The funds destined for the maintenance of productive labour
are not only much greater in the former than in the latter, but bear a much greater
proportion to those which, though they may be employed to maintain either productive
or unproductive hands, have generally a predilection for the latter.

The proportion between those different funds necessarily determines in every
country the general character of the inhabitants as to industry or idleness. We are more

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THE WEALTH OF NATIONS

industrious than our forefathers, because, in the present times, the funds destined for
the maintenance of industry are much greater in proportion to those which are likely to
be employed in the maintenance of idleness, than they were two or three centuries ago.
Our ancestors were idle for want of a sufficient encouragement to industry. It is better,
says the proverb, to play for nothing, than to work for nothing. In mercantile and
manufacturing towns, where the inferior ranks of people are chiefly maintained by the
employment of capital, they are in general industrious, sober, and thriving; as in many
English, and in most Dutch towns. In those towns which are principally supported
by the constant or occasional residence of a court, and in which the inferior ranks
of people are chiefly maintained by the spending of revenue, they are in general idle,
dissolute, and poor; as at Rome, Versailles, Compeigne, and Fontainbleau. If you except
Rouen and Bourdeaux, there is little trade or industry in any of the parliament towns
of France; and the inferior ranks of people, being chiefly maintained by the expense
of the members of the courts of justice, and of those who come to plead before
them, are in general idle and poor. The great trade of Rouen and Bourdeaux seems to
be altogether the effect of their situation. Rouen is necessarily the entrepot of almost
all the goods which are brought either from foreign countries, or from the maritime
provinces of France, for the consumption of the great city of Paris. Bourdeaux is,
in the same manner, the entrepot of the wines which grow upon the banks of the
Garronne, and of the rivers which run into it, one of the richest wine countries in the
world, and which seems to produce the wine fittest for exportation, or best suited to the
taste of foreign nations. Such advantageous situations necessarily attract a great capital
by the great employment which they afford it; and the employment of this capital is
the cause of the industry of those two cities. In the other parliament towns of France,
very little more capital seems to be employed than what is necessary for supplying their
own consumption; that is, little more than the smallest capital which can be employed
in them. The same thing may be said of Paris, Madrid, and Vienna. Of those three
cities, Paris is by far the most industrious, but Paris itself is the principal market of all
the manufactures established at Paris, and its own consumption is the principal object
of all the trade which it carries on. London, Lisbon, and Copenhagen, are, perhaps,
the only three cities in Europe, which are both the constant residence of a court, and
can at the same time be considered as trading cities, or as cities which trade not only
for their own consumption, but for that of other cities and countries. The situation of
all the three is extremely advantageous, and naturally fits them to be the entrepots of a
great part of the goods destined for the consumption of distant places. In a city where
a great revenue is spent, to employ with advantage a capital for any other purpose than
for supplying the consumption of that city, is probably more difficult than in one in
which the inferior ranks of people have no other maintenance but what they derive
from the employment of such a capital. The idleness of the greater part of the people
who ate maintained by the expense of revenue, corrupts, it is probable, the industry
of those who ought to be maintained by the employment of capital, and renders it less
advantageous to employ a capital there than in other places. There was little trade or

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industry in Edinburgh before the Union. When the Scotch parliament was no longer to
be assembled in it, when it ceased to be the necessary residence of the principal nobility
and gentry of Scotland, it became a city of some trade and industry. It still continues,
however, to be the residence of the principal courts of justice in Scotland, of the
boards of customs and excise, etc. A considerable revenue, therefore, still continues
to be spent in it. In trade and industry, it is much inferior to Glasgow, of which the
inhabitants are chiefly maintained by the employment of capital. The inhabitants of a
large village, it has sometimes been observed, after having made considerable progress
in manufactures, have become idle and poor, in consequence of a great lord’s having
taken up his residence in their neighbourhood.

The proportion between capital and revenue, therefore, seems everywhere to
regulate the proportion between industry and idleness Wherever capital predominates,
industry prevails; wherever revenue, idleness. Every increase or diminution of capital,
therefore, naturally tends to increase or diminish the real quantity of industry, the
number of productive hands, and consequently the exchangeable value of the annual
produce of the land and labour of the country, the real wealth and revenue of all its
inhabitants.

Capitals are increased by parsimony, and diminished by prodigality and misconduct.

Whatever a person saves from his revenue he adds to his capital, and either employs
it himself in maintaining an additional number of productive hands, or enables some
other person to do so, by lending it to him for an interest, that 1s, for a share of the
profits. As the capital of an individual can be increased only by what he saves from his
annual revenue or his annual gains, so the capital of a society, which is the same with
that of all the individuals who compose it, can be increased only in the same manner.

Parsimony, and not industry, is the immediate cause of the increase of capital.
Industry, indeed, provides the subject which parsimony accumulates; but whatever
industry might acquire, if parsimony did not save and store up, the capital would never
be the greater.

Parsimony, by increasing the fund which is destined for the maintenance of
productive hands, tends to increase the number of those hands whose labour adds to
the value of the subject upon winch it is bestowed. It tends, therefore, to increase the
exchangeable value of the annual produce of the land and labour of the country. It
puts into motion an additional quantity of industry, which gives an additional value to
the annual produce.

What is annually saved, is as regularly consumed as what is annually spent, and
neatly in the same time too: but it is consumed by a different set of people. That
portion of his revenue which a rich man annually spends, is, in most cases, consumed
by idle guests and menial servants, who leave nothing behind them in return for their
consumption. That portion which he annually saves, as, for the sake of the profit, it
is immediately employed as a capital, is consumed in the same manner, and nearly
in the same time too, but by a different set of people: by labourers, manufacturers,
and artificers, who reproduce, with a profit, the value of their annual consumption.

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His revenue, we shall suppose, is paid him in money. Had he spent the whole, the
food, clothing, and lodging, which the whole could have purchased, would have been
distributed among the former set of people. By saving a part of it, as that part is, for
the sake of the profit, immediately employed as a capital, either by himself or by some
other person, the food, clothing, and lodging, which may be purchased with it, are
necessatily reserved for the latter. The consumption is the same, but the consumers
are different.

By what a frugal man annually saves, he not only affords maintenance to an additional
number of productive hands, for that of the ensuing year, but like the founder of a
public work-house he establishes, as it were, a perpetual fund for the maintenance of
an equal number in all times to come. The perpetual allotment and destination of this
fund, indeed, is not always guarded by any positive law, by any trust-right or deed of
mortmain. It is always guarded, however, by a very powerful principle, the plain and
evident interest of every individual to whom any share of it shall ever belong. No part
of it can ever afterwards be employed to maintain any but productive hands, without an
evident loss to the person who thus perverts it from its proper destination.

The prodigal perverts it in this manner: By not confining his expense within his
income, he encroaches upon his capital. Like him who perverts the revenues of some
pious foundation to profane purposes, he pays the wages of idleness with those funds
which the frugality of his forefathers had, as it were, consecrated to the maintenance of
industry. By diminishing the funds destined for the employment of productive labour,
he necessarily diminishes, so far as it depends upon him, the quantity of that labour
which adds a value to the subject upon which it is bestowed, and, consequently, the
value of the annual produce of the land and labour of the whole country, the real
wealth and revenue of its inhabitants. If the prodigality of some were not compensated
by the frugality of others, the conduct of every prodigal, by feeding the idle with the
bread of the industrious, would tend not only to beggar himself, but to impoverish his
country.

Though the expense of the prodigal should be altogether in home made, and no
part of it in foreign commodities, its effect upon the productive funds of the society
would still be the same. Every year there would still be a certain quantity of food
and clothing, which ought to have maintained productive, employed in maintaining
unproductive hands. Every year, therefore, there would still be some diminution in
what would otherwise have been the value of the annual produce of the land and
labour of the country.

This expense, it may be said, indeed, not being in foreign goods, and not
occasioning any exportation of gold and silver, the same quantity of money would
remain in the country as before. But if the quantity of food and clothing which were
thus consumed by unproductive, had been distributed among productive hands, they
would have reproduced, together with a profit, the full value of their consumption. The
same quantity of money would, in this case, equally have remained in the country, and
there would, besides, have been a reproduction of an equal value of consumable goods.

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There would have been two values instead of one.

The same quantity of money, besides, can not long remain in any country in which
the value of the annual produce diminishes. The sole use of money is to circulate
consumable goods. By means of it, provisions, materials, and finished work, are bought
and sold, and distributed to their proper consumers. The quantity of money, therefore,
which can be annually employed in any country, must be determined by the value
of the consumable goods annually circulated within it. These must consist, either in
the immediate produce of the land and labour of the country itself, or in something
which had been purchased with some part of that produce. Their value, therefore,
must diminish as the value of that produce diminishes, and along with it the quantity
of money which can be employed in circulating them. But the money which, by this
annual diminution of produce, is annually thrown out of domestic circulation, will
not be allowed to lie idle. The interest of whoever possesses it requires that it should
be employed; but having no employment at home, it will, in spite of all laws and
prohibitions, be sent abroad, and employed in purchasing consumable goods, which
may be of some use at home. Its annual exportation will, in this manner, continue for
some time to add something to the annual consumption of the country beyond the
value of its own annual produce. What in the days of its prosperity had been saved
from that annual produce, and employed in purchasing gold and silver, will contribute,
for some little time, to support its consumption in adversity. The exportation of gold
and silver is, in this case, not the cause, but the effect of its declension, and may even,
for some little time, alleviate the misery of that declension.

The quantity of money, on the contrary, must in every country naturally increase
as the value of the annual produce increases. The value of the consumable goods
annually circulated within the society being greater, will require a greater quantity of
money to circulate them. A part of the increased produce, therefore, will naturally be
employed in purchasing, wherever it is to be had, the additional quantity of gold and
silver necessary for circulating the rest. The increase of those metals will, in this case,
be the effect, not the cause, of the public prosperity. Gold and silver are purchased
everywhere in the same manner. The food, clothing, and lodging, the revenue and
maintenance, of all those whose labour or stock is employed in bringing them from
the mine to the market, is the price paid for them in Peru as well as in England. The
country which has this price to pay, will never belong without the quantity of those
metals which it has occasion for; and no country will ever long retain a quantity which
it has no occasion for.

Whatever, therefore, we may imagine the real wealth and revenue of a country to
consist in, whether in the value of the annual produce of its land and labour, as plain
reason seems to dictate, or in the quantity of the precious metals which circulate within
it, as vulgar prejudices suppose; in either view of the matter, every prodigal appears to
be a public enemy, and every frugal man a public benefactor.

Theeffects of misconductare often the sameas those of prodigality. Everyinjudicious
and unsuccessful project in agriculture, mines, fisheries, trade, or manufactures, tends

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in the same manner to diminish the funds destined for the maintenance of productive
labour. In every such project, though the capital is consumed by productive hands only,
yet as, by the injudicious manner in which they are employed, they do not reproduce
the full value of their consumption, there must always be some diminution in what
would otherwise have been the productive funds of the society.

It can seldom happen, indeed, that the circumstances of a great nation can be
much affected either by the prodigality or misconduct of individuals; the profusion or
imprudence of some being always more than compensated by the frugality and good
conduct of others.

With regard to profusion, the principle which prompts to expense is the passion for
present enjoyment; which, though sometimes violent and very difficult to be restrained,
is in general only momentary and occasional. But the principle which prompts to
save, is the desire of bettering our condition; a desire which, though generally calm
and dispassionate, comes with us from the womb, and never leaves us till we go into
the grave. In the whole interval which separates those two moments, there is scarce,
perhaps, a single instance, in which any man is so perfectly and completely satisfied with
his situation, as to be without any wish of alteration or improvement of any kind. An
augmentation of fortune is the means by which the greater part of men propose and
wish to better their condition. It is the means the most vulgar and the most obvious;
and the most likely way of augmenting their fortune, is to save and accumulate some
part of what they acquire, either regularly and annually, or upon some extraordinary
occasion. Though the principle of expense, therefore, prevails in almost all men upon
some occasions, and in some men upon almost all occasions; yet in the greater part of
men, taking the whole course of their life at an average, the principle of frugality seems
not only to predominate, but to predominate very greatly.

With regard to misconduct, the number of prudent and successful undertakings
is everywhere much greater than that of injudicious and unsuccessful ones. After all
our complaints of the frequency of bankruptcies, the unhappy men who fall into this
misfortune, make but a very small part of the whole number engaged in trade, and all
other sorts of business; not much more, perhaps, than one in a thousand. Bankruptcy
is, perhaps, the greatest and most humiliating calamity which can befal an innocent
man. The greater part of men, therefore, are sufficiently careful to avoid it. Some,
indeed, do not avoid it; as some do not avoid the gallows.

Great nations are never impoverished by private, though they sometimes are by
public prodigality and misconduct. The whole, or almost the whole public revenue is,
in most countries, employed in maintaining unproductive hands. Such are the people
who compose a numerous and splendid court, a great ecclesiastical establishment, great
fleets and armies, who in time of peace produce nothing, and in time of war acquire
nothing which can compensate the expense of maintaining them, even while the
war lasts. Such people, as they themselves produce nothing, are all maintained by the
produce of other men’s labour. When multiplied, therefore, to an unnecessary number,
they may in a particular year consume so great a share of this produce, as not to leave

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a sufficiency for maintaining the productive labourers, who should reproduce it next
year. The next year’s produce, therefore, will be less than that of the foregoing; and if
the same disorder should continue, that of the third year will be still less than that of
the second. Those unproductive hands who should be maintained by a part only of
the spare revenue of the people, may consume so great a share of their whole revenue,
and thereby oblige so great a number to encroach upon their capitals, upon the funds
destined for the maintenance of productive labour, that all the frugality and good
conduct of individuals may not be able to compensate the waste and degradation of
produce occasioned by this violent and forced encroachment.

This frugality and good conduct, however, is, upon most occasions, it appears from
experience, sufficient to compensate, not only the private prodigality and misconduct
of individuals, but the public extravagance of government. The uniform, constant,
and uninterrupted effort of every man to better his condition, the principle from
which public and national, as well as private opulence is originally derived, is frequently
powerful enough to maintain the natural progress of things towards improvement,
in spite both of the extravagance of government, and of the greatest errors of
administration. Like the unknown principle of animal life, it frequently restores health
and vigour to the constitution, in spite not only of the disease, but of the absurd
prescriptions of the doctor.

The annual produce of the land and labour of any nation can be increased in
its value by no other means, but by increasing either the number of its productive
labourets, or the productive powers of those labourers who had before been employed.
The number of its productive labourers, it is evident, can never be much increased,
but in consequence of an increase of capital, or of the funds destined for maintaining
them. The productive powers of the same number of labourers cannot be increased,
but in consequence either of some addition and improvement to those machines
and instruments which facilitate and abridge labour, or of more proper division and
distribution of employment. In either case, an additional capital is almost always
required. It is by means of an additional capital only, that the undertaker of any
work can either provide his workmen with better machinery, or make a more proper
distribution of employment among them. When the work to be done consists of a
number of parts, to keep every man constantly employed in one way, requires a much
greater capital than where every man is occasionally employed in every different part of
the work. When we compare, therefore, the state of a nation at two different periods,
and find that the annual produce of its land and labour is evidently greater at the
latter than at the former, that its lands are better cultivated, its manufactures more
numerous and more flourishing, and its trade more extensive; we may be assured that
its capital must have increased during the interval between those two periods, and that
more must have been added to it by the good conduct of some, than had been taken
from it either by the private misconduct of others, or by the public extravagance of
government. But we shall find this to have been the case of almost all nations, in all
tolerably quiet and peaceable times, even of those who have not enjoyed the most

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prudent and parsimonious governments. To form a right judgment of it, indeed, we
must compare the state of the country at periods somewhat distant from one another.
The progress is frequently so gradual, that, at near periods, the improvement is not
only not sensible, but, from the declension either of certain branches of industry, or
of certain districts of the country, things which sometimes happen, though the country
in general is in great prosperity, there frequently arises a suspicion, that the riches and
industry of the whole are decaying,

The annual produce of the land and labour of England, for example, is certainly
much greater than it was a little more than a century ago, at the restoration of Charles
II. Though at present few people, I believe, doubt of this, yet during this period
five years have seldom passed away, in which some book or pamphlet has not been
published, written, too, with such abilities as to gain some authority with the public,
and pretending to demonstrate that the wealth of the nation was fast declining; that
the country was depopulated, agriculture neglected, manufactures decaying, and trade
undone. Nor have these publications been all party pamphlets, the wretched offspring
of falsehood and venality. Many of them have been written by very candid and very
intelligent people, who wrote nothing but what they believed, and for no other reason
but because they believed it.

The annual produce of the land and labour of England, again, was certainly
much ereater at the Restoration than we can suppose it to have been about a hundred
years before, at the accession of Elizabeth. At this period, too, we have all reason to
believe, the country was much more advanced in improvement, than it had been about
a century before, towards the close of the dissensions between the houses of York
and Lancaster. Even then it was, probably, in a better condition than it had been at the
Norman conquest: and at the Norman conquest, than during the confusion of the
Saxon heptarchy. Even at this early period, it was certainly a more improved country
than at the invasion of Julius Caesar, when its inhabitants were nearly in the same state
with the savages in North America.

In each of those periods, however, there was not only much private and public
profusion, many expensive and unnecessaty wars, great perversion of the annual
produce from maintaining productive to maintain unproductive hands; but sometimes,
in the confusion of civil discord, such absolute waste and destruction of stock, as
might be supposed, not only to retard, as it certainly did, the natural accumulation
of riches, but to have left the country, at the end of the period, poorer than at the
beginning. Thus, in the happiest and most fortunate period of them all, that which
has passed since the Restoration, how many disorders and misfortunes have occurred,
which, could they have been foreseen, not only the impoverishment, but the total ruin
of the country would have been expected from them? The fite and the plague of
London, the two Dutch wars, the disorders of the revolution, the war in Ireland, the
four expensive French wars of 1688, 1701, 1742, and 1756, together with the two
rebellions of 1715 and 1745. In the course of the four French wars, the nation has
contracted more than {145,000,000 of debt, over and above all the other extraordinary

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annual expense which they occasioned; so that the whole cannot be computed at less
than £200,000,000. So great a share of the annual produce of the land and labour
of the country, has, since the Revolution, been employed upon different occasions,
in maintaining an extraordinary number of unproductive hands. But had not those
wars given this particular direction to so large a capital, the greater part of it would
naturally have been employed in maintaining productive hands, whose labour would
have replaced, with a profit, the whole value of their consumption. The value of the
annual produce of the land and labour of the country would have been considerably
increased by it every year, and every years increase would have augmented still more
that of the following year. More houses would have been built, more lands would have
been improved, and those which had been improved before would have been better
cultivated; more manufactures would have been established, and those which had been
established before would have been more extended; and to what height the real wealth
and revenue of the country might by this time have been raised, it is not perhaps very
easy even to imagine.

But though the profusion of government must undoubtedly have retarded the
natural progress of England towards wealth and improvement, it has not been able
to stop it. The annual produce of its land and labour is undoubtedly much greater at
present than it was either at the Restoration or at the Revolution. The capital, therefore,
annually employed in cultivating this land, and in maintaining this labour, must likewise
be much greater. In the midst of all the exactions of government, this capital has
been silently and gradually accumulated by the private frugality and good conduct of
individuals, by their universal, continual, and uninterrupted effort to better their own
condition. It is this effort, protected by law, and allowed by liberty to exert itself in
the manner that is most advantageous, which has maintained the progress of England
towards opulence and improvement in almost all former times, and which, it is to be
hoped, will do so in all future times. England, however, as it has never been blessed with
a vety parsimonious government, so parsimony has at no time been the characteristic
virtue of its inhabitants. It is the highest impertinence and presumption, therefore, in
kings and ministers to pretend to watch over the economy of private people, and to
restrain their expense, either by sumptuary laws, or by prohibiting the importation of
foreign luxuries. They are themselves always, and without any exception, the greatest
spendthrifts in the society. Let them look well after their own expense, and they may
safely trust private people with theirs. If their own extravagance does not ruin the state,
that of the subject never will.

As frugality increases, and prodigality diminishes, the public capital, so the conduct
of those whose expense just equals their revenue, without either accumulating or
encroaching, neither increases nor diminishes it. Some modes of expense, however,
seem to contribute more to the growth of public opulence than others.

The revenue of an individual may be spent, either in things which are consumed
immediately, and in which one day’s expense can neither alleviate nor support that of
another; or it may be spent in things mere durable, which can therefore be accumulated,

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and in which every day’s expense may, as he chooses, either alleviate, or support and
heighten, the effect of that of the following day. A man of fortune, for example,
may either spend his revenue in a profuse and sumptuous table, and in maintaining a
great number of menial servants, and a multitude of dogs and horses; or, contenting
himself with a frugal table, and few attendants, he may lay out the greater part of it in
adorning his house or his country villa, in useful or ornamental buildings, in useful or
ornamental furniture, in collecting books, statues, pictures; or in things more frivolous,
jewels, baubles, ingenious trinkets of different kinds; or, what is most trifling of all,
in amassing a great wardrobe of fine clothes, like the favourite and minister of a
great prince who died a few years ago. Were two men of equal fortune to spend their
revenue, the one chiefly in the one way, the other in the other, the magnificence of the
person whose expense had been chiefly in durable commodities, would be continually
increasing, every day’s expense contributing something to support and heighten the
effect of that of the following day; that of the other, on the contrary, would be no
greater at the end of the period than at the beginning. The former too would, at the
end of the period, be the richer man of the two. He would have a stock of goods of
some kind or other, which, though it might not be worth all that it cost, would always
be worth something, No trace or vestige of the expense of the latter would remain,
and the effects of ten or twenty years’ profusion would be as completely annihilated as
if they had never existed.

As the one mode of expense is more favourable than the other to the opulence
of an individual, so is it likewise to that of a nation. The houses, the furniture, the
clothing of the rich, in a little time, become useful to the inferior and middling ranks
of people. They are able to purchase them when their superiors grow weary of them;
and the general accommodation of the whole people is thus gradually improved, when
this mode of expense becomes universal among men of fortune. In countries which
have long been rich, you will frequently find the inferior ranks of people in possession
both of houses and furniture perfectly good and entire, but of which neither the one
could have been built, nor the other have been made for their use. What was formerly a
seat of the family of Seymour, is now an inn upon the Bath road. The marriage-bed of
James I. of Great Britain, which his queen brought with her from Denmark, as a present
fit for a sovereign to make to a sovereign, was, a few years ago, the ornament of an
alehouse at Dunfermline. In some ancient cities, which either have been long stationary,
or have gone somewhat to decay, you will sometimes scarce find a single house which
could have been built for its present inhabitants. If you go into those houses, too, you
will frequently find many excellent, though antiquated pieces of furniture, which are
still very fit for use, and which could as little have been made for them. Noble palaces,
magnificent villas, great collections of books, statues, pictures, and other curiosities,
are frequently both an ornament and an honour, not only to the neighbourhood, but
to the whole country to which they belong. Versailles is an ornament and an honour to
France, Stowe and Wilton to England. Italy still continues to command some sort of
veneration, by the number of monuments of this kind which it possesses, though the

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wealth which produced them has decayed, and though the genius which planned them
seems to be extinguished, perhaps from not having the same employment.

The expense, too, which is laid out in durable commodities, is favourable not only
to accumulation, but to frugality. If a person should at any time exceed in it, he can
easily reform without exposing himself to the censure of the public. To reduce very
much the number of his servants, to reform his table from great profusion to great
frugality, to lay down his equipage after he has once set it up, are changes which cannot
escape the observation of his neighbours, and which are supposed to imply some
acknowledgment of preceding bad conduct. Few, therefore, of those who have once
been so unfortunate as to launch out too far into this sort of expense, have afterwards
the courage to reform, till ruin and bankruptcy oblige them. But if a person has, at any
time, been at too great an expense in building, in furniture, in books, or pictures, no
imprudence can be inferred from his changing his conduct. These are things in which
further expense is frequently rendered unnecessary by former expense; and when a
person stops short, he appears to do so, not because he has exceeded his fortune, but
because he has satisfied his fancy.

The expense, besides, that is laid out in durable commodities, gives maintenance,
commonly, to a greater number of people than that which is employed in the most
profuse hospitality. Of two or three hundred weight of provisions, which may sometimes
be served up at a great festival, one half, perhaps, is thrown to the dunghill, and there
is always a great deal wasted and abused. But if the expense of this entertainment had
been employed in setting to work masons, carpenters, upholsterers, mechanics, etc. a
quantity of provisions of equal value would have been distributed among a still greater
number of people, who would have bought them in pennyworths and pound weights,
and not have lost or thrown away a single ounce of them. In the one way, besides,
this expense maintains productive, in the other unproductive hands. In the one way,
therefore, it increases, in the other it does not increase the exchangeable value of the

annual produce of the land and labour of the country.

I would not, however, by all this, be understood to mean, that the one species of
expense always betokens a more liberal or generous spirit than the other. When a man
of fortune spends his revenue chiefly in hospitality, he shares the greater part of it
with his friends and companions; but when he employs it in purchasing such durable
commodities, he often spends the whole upon his own person, and gives nothing to
any body without an equivalent. The latter species of expense, therefore, especially
when directed towards frivolous objects, the little ornaments of dress and furniture,
jewels, trinkets, gew-gaws, frequently indicates, not only a trifling, but a base and selfish
disposition. All that I mean is, that the one sort of expense, as it always occasions some
accumulation of valuable commodities, as it is more favourable to private frugality,
and, consequently, to the increase of the public capital, and as it maintains productive
rather than unproductive hands, conduces more than the other to the growth of public

opulence.

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CHAPTER IV.
OF STOCK LENT AT INTEREST.

he stock which is lent at interest is always considered as a capital by the lender. He

expects that in due time it is to be restored to him, and that, in the mean time, the
borrower is to pay him a certain annual rent for the use of it. The borrower may use
it either as a capital, or as a stock reserved for immediate consumption. If he uses it
as a capital, he employs it in the maintenance of productive labourers, who reproduce
the value, with a profit. He can, in this case, both restore the capital, and pay the
interest, without alienating or encroaching upon any other source of revenue. If he
uses it as a stock reserved for immediate consumption, he acts the part of a prodigal,
and dissipates, in the maintenance of the idle, what was destined for the support of
the industrious. He can, in this case, neither restore the capital nor pay the interest,
without either alienating or encroaching upon some other source of revenue, such as
the property or the rent of land.

The stock which is lent at interest is, no doubt, occasionally employed in both these
ways, but in the former much more frequently than in the latter. The man who borrows
in order to spend will soon be ruined, and he who lends to him will generally have
occasion to repent of his folly. To borrow or to lend for such a purpose, therefore, is,
in all cases, where gross usury is out of the question, contrary to the interest of both
parties; and though it no doubt happens sometimes, that people do both the one and the
other, yet, from the regard that all men have for their own interest, we may be assured,
that it cannot happen so very frequently as we are sometimes apt to imagine. Ask any
rich man of common prudence, to which of the two sorts of people he has lent the
greater part of his stock, to those who he thinks will employ it profitably, or to those
who will spend it idly, and he will laugh at you for proposing the question. Even among
borrowers, therefore, not the people in the world most famous for frugality, the number
of the frugal and industrious surpasses considerably that of the prodigal and idle.

The only people to whom stock is commonly lent, without their being expected
to make any very profitable use of it, are country gentlemen, who borrow upon
mortgage. Even they scarce ever borrow merely to spend. What they borrow, one may
say, is commonly spent before they borrow it. They have generally consumed so great
a quantity of goods, advanced to them upon credit by shop-keepers and tradesmen,
that they find it necessary to borrow at interest, in order to pay the debt. The capital
borrowed replaces the capitals of those shop-keepers and tradesmen which the country
gentlemen could not have replaced from the rents of their estates. It is not properly
borrowed in order to be spent, but in order to teplace a capital which had been spent

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before.

Almost all loans at interest are made in money, either of paper, or of gold and
silver; but what the borrower really wants, and what the lender readily supplies him
with, is not the money, but the money’s worth, or the goods which it can purchase.
If he wants it as a stock for immediate consumption, it is those goods only which he
can place in that stock. If he wants it as a capital for employing industry, it is from
those goods only that the industrious can be furnished with the tools, materials, and
maintenance necessary for carrying on their work. By means of the loan, the lender, as
it were, assigns to the borrower his right to a certain portion of the annual produce of
the land and labour of the country, to be employed as the borrower pleases.

The quantity of stock, therefore, or, as it is commonly expressed, of money, which
can be lent at interest in any country, is not regulated by the value of the money,
whether paper or coin, which serves as the instrument of the different loans made
in that country, but by the value of that part of the annual produce, which, as soon
as it comes either from the ground, or from the hands of the productive labourers, is
destined, not only for replacing a capital, but such a capital as the owner does not care
to be at the trouble of employing himself. As such capitals are commonly lent out and
paid back in money, they constitute what is called the monied interest. It is distinct,
not only from the landed, but from the trading and manufacturing interests, as in these
last the owners themselves employ their own capitals. Even in the monied interest,
however, the money is, as it were, but the deed of assignment, which conveys from one
hand to another those capitals which the owners do not care to employ themselves.
Those capitals may be greater, in almost any proportion, than the amount of the
money which serves as the instrument of their conveyance; the same pieces of money
successively serving for many different loans, as well as for many different purchases.
A, for example, lends to W £1000, with which W immediately purchases of B £1000
worth of goods. B having no occasion for the money himself, lends the identical pieces

to X, with which X immediately purchases of C another £1000 worth of goods. C, in
the same manner, and for the same reason, lends them to Y, who again purchases goods
with them of D. In this manner, the same pieces, either of coin or of paper, may, in
the course of a few days, serve as the Instrument of three different loans, and of three
different purchases, each of which is, in value, equal to the whole amount of those
pieces. What the three monied men, A, B, and C, assigned to the three borrowers, W,
X, and Y, is the power of making those purchases. In this power consist both the value
and the use of the loans. The stock lent by the three monied men is equal to the value
of the goods which can be purchased with it, and is three times greater than that of the
money with which the purchases are made. Those loans, however, may be all perfectly
well secured, the goods purchased by the different debtors being so employed as, in due
time, to bring back, with a profit, an equal value either of coin or of paper. And as the
same pieces of money can thus serve as the instrument of different loans to three, or,
for the same reason, to thirty times their value, so they may likewise successively serve

as the instrument of repayment.

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A capital lent at interest may, in this manner, be considered as an assignment, from
the lender to the borrower, of a certain considerable portion of the annual produce,
upon condition that the burrower in return shall, during the continuance of the loan,
annually assign to the lender a small portion, called the interest; and, at the end of it,
a portion equally considerable with that which had originally been assigned to him,
called the repayment. Though money, either coin or paper, serves generally as the deed
of assignment, both to the smaller and to the more considerable portion, it is itself
altogether different from what is assigned by it.

In proportion as that share of the annual produce which, as soon as it comes
either from the ground, or from the hands of the productive labourers, is destined for
replacing a capital, increases in any country, what is called the monied interest naturally
increases with it. The increase of those particular capitals from which the owners
wish to derive a revenue, without being at the trouble of employing them themselves,
naturally accompanies the general increase of capitals; or, in other words, as stock
increases, the quantity of stock to be lent at interest grows gradually greater and greater.

As the quantity of stock to be lent at interest increases, the interest, or the price
which must be paid for the use of that stock, necessarily diminishes, not only from
those general causes which make the market price of things commonly diminish as
their quantity increases, but from other causes which are peculiar to this particular
case. As capitals increase in any country, the profits which can be made by employing
them necessarily diminish. It becomes gradually more and more difficult to find
within the country a profitable method of employing any new capital. There arises, in
consequence, a competition between different capitals, the owner of one endeavouring
to get possession of that employment which is occupied by another; but, upon most
occasions, he can hope to justle that other out of this employment by no other means
but by dealing upon more reasonable terms. He must not only sell what he deals in
somewhat cheaper, but, in order to get it to sell, he must sometimes, too, buy it dearer.
The demand for productive labour, by the increase of the funds which are destined for
maintaining it, grows every day greater and greater. Labourers easily find employment;
but the owners of capitals find it difficult to get labourers to employ. Their competition
raises the wages of labour, and sinks the profits of stock. But when the profits which
can be made by the use of a capital are in this manner diminished, as it were, at both
ends, the price which can be paid for the use of it, that is, the rate of interest, must
necessarily be diminished with them.

Mr Locke, Mr Lawe, and Mr Montesquieu, as well as many other writers, seem to
have imagined that the increase of the quantity of gold and silver, in consequence of
the discovery of the Spanish West Indies, was the real cause of the lowering of the rate
of interest through the greater part of Europe. Those metals, they say, having become
of less value themselves, the use of any particular portion of them necessarily became
of less value too, and, consequently, the price which could be paid for it. This notion,
which at first sight seems so plausible, has been so fully exposed by Mr Hume, that it
1s, perhaps, unnecessary to say any thing more about it. The following very short and

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plain argument, however, may serve to explain more distinctly the fallacy which seems
to have misled those gentlemen.

Before the discovery of the Spanish West Indies, ten per cent. seems to have been
the common rate of interest through the greater part of Europe. It has since that time,
in different countries, sunk to six, five, four, and three per cent. Let us suppose, that in
every particular country the value of silver has sunk precisely in the same proportion
as the rate of interest; and that in those countries, for example, where interest has been
reduced from ten to five pet cent. the same quantity of silver can now purchase just
half the quantity of goods which it could have purchased before. This supposition will
not, I believe, be found anywhere agreeable to the truth; but it is the most favourable to
the opinion which we are going to examine; and, even upon this supposition, it is utterly
impossible that the lowering of the value of silver could have the smallest tendency to
lower the rate of interest. If £100 are in those countries now of no more value than £50
were then, £10 must now be of no more value than £5 were then. Whatever were the
causes which lowered the value of the capital, the same must necessarily have lowered
that of the interest, and exactly in the same proportion. The proportion between the
value of the capital and that of the interest must have remained the same, though
the rate had never been altered. By altering the rate, on the contrary, the proportion
between those two values is necessarily altered. If £100 now are worth no more than
£50 were then, £5 now can be worth no more than £2:10s. were then. By reducing the
rate of interest, therefore, from ten to five per cent. we give for the use of a capital,
which is supposed to be equal to one half of its former value, an interest which is equal
to one fourth only of the value of the former interest.

An increase in the quantity of silver, while that of the commodities circulated by
means of it remained the same, could have no other effect than to diminish the value
of that metal. The nominal value of all sorts of goods would be greater, but their real
value would be precisely the same as before. They would be exchanged for a greater

‘number of pieces of silver; but the quantity of labour which they could command,
the number of people whom they could maintain and employ, would be precisely the
same. The capital of the country would be the same, though a greater number of pieces
might be requisite for conveying any equal portion of it from one hand to another.
The deeds of assignment, like the conveyances of a verbose attorney, would be more
cumbersome; but the thing assigned would be precisely the same as before, and could
produce only the same effects. The funds for maintaining productive labour being
the same, the demand for it would be the same. Its price or wages, therefore, though
nominally greater, would really be the same. They would be paid in a greater number
of pieces of silver, but they would purchase only the same quantity of goods. The
profits of stock would be the same, both nominally and really. The wages of labout are
commonly computed by the quantity of silver which is paid to the labourer. When that
is increased, therefore, his wages appear to be increased, though they may sometimes
be no greater than before. But the profits of stock are not computed by the number
of pieces of silver with which they are paid, but by the proportion which those pieces

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THE WEALTH OF NATIONS

bear to the whole capital employed. Thus, in a particular country, 5s. a-week are said to
be the common wages of labour, and ten per cent. the common profits of stock; but
the whole capital of the country being the same as before, the competition between
the different capitals of individuals into which it was divided would likewise be the
same. They would all trade with the same advantages and disadvantages. The common
proportion between capital and profit, therefore, would be the same, and consequently
the common interest of money; what can commonly be given for the use of money
being necessarily regulated by what can commonly be made by the use of it.

Any increase in the quantity of commodities annually circulated within the country,
while that of the money which circulated them remained the same, would, on the
contrary, produce many other important effects, besides that of raising the value of
the money. The capital of the country, though it might nominally be the same, would
really be augmented. It might continue to be expressed by the same quantity of money,
but it would command a greater quantity of labour. The quantity of productive labour
which it could maintain and employ would be increased, and consequently the demand
for that labour. Its wages would naturally rise with the demand, and yet might appear
to sink. They might be paid with a smaller quantity of money, but that smaller quantity
might purchase a greater quantity of goods than a greater had done before. The profits
of stock would be diminished, both really and in appearance. The whole capital of the
country being augmented, the competition between the different capitals of which
it was composed would naturally be augmented along with it. The owners of those
particular capitals would be obliged to content themselves with a smaller proportion
of the produce of that labour which their respective capitals employed. The interest of
money, keeping pace always with the profits of stock, might, in this manner, be greatly
diminished, though the value of money, or the quantity of goods which any particular
sum could purchase, was greatly augmented.

In some countries the interest of money has been prohibited by law. But as
something can everywhere be made by the use of money, something ought everywhere
to be paid for the use of it. This regulation, instead of preventing, has been found
from experience to increase the evil of usury. The debtor being obliged to pay, not
only for the use of the money, but for the risk which his creditor runs by accepting a
compensation for that use, he is obliged, if one may say so, to insure his creditor from
the penalties of usury.

In countries where interest is permitted, the law in order to prevent the extortion
of usury, generally fixes the highest rate which can be taken without incurring a penalty.
This rate ought always to be somewhat above the lowest market price, or the price which
is commonly paid for the use of money by those who can give the most undoubted
security. If this legal rate should be fixed below the lowest market rate, the effects of
this fixation must be nearly the same as those of a total prohibition of interest. The
creditor will not lend his money for less than the use of it is worth, and the debtor
must pay him for the risk which he runs by accepting the full value of that use. If it is
fixed precisely at the lowest market price, it ruins, with honest people who respect the

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laws of their country, the credit of all those who cannot give the very best security, and
obliges them to have recourse to exorbitant usurers. In a country such as Great Britain,
where money is lent to government at three per cent. and to private people, upon good
security, at four and four and a-half, the present legal rate, five per cent. is perhaps as
proper as any.

The legal rate, it is to be observed, though it ought to be somewhat above, ought not
to be much above the lowest market rate. If the legal rate of interest in Great Britain,
for example, was fixed so high as eight or ten per cent. the greater part of the money
which was to be lent, would be lent to prodigals and projectors, who alone would be
willing to give this high interest. Sober people, who will give for the use of money no
more than a part of what they are likely to make by the use of it, would not venture into
the competition. A great part of the capital of the country would thus be kept out of
the hands which were most likely to make a profitable and advantageous use of it, and
thrown into those which were most likely to waste and destroy it. Where the legal rate
of interest, on the contrary, is fixed but a very little above the lowest market rate, sober
people are universally preferred, as borrowers, to prodigals and projectors. The person
who lends money gets nearly as much interest from the former as he dares to take from
the latter, and his money is much safer in the hands of the one set of people than in
those of the other. A great part of the capital of the country is thus thrown into the
hands in which it is most likely to be employed with advantage.

No law can reduce the common rate of interest below the lowest ordinary market
rate at the time when that law is made. Notwithstanding the edict of 1766, by which
the French king attempted to reduce the rate of interest from five to four per cent.
money continued to be lent in France at five per cent. the law being evaded in several
different ways.

The ordinary market price of land, it is to be observed, depends everywhere upon
the ordinary market rate of interest. The person who has a capital from which he

‘wishes to derive a revenue, without taking the trouble to employ it himself, deliberates

whether he should buy land with it, or lend it out at interest. The superior security
of land, together with some other advantages which almost everywhere attend upon
this species of property, will generally dispose him to content himself with a smaller
revenue from land, than what he might have by lending out his money at interest. These
advantages are sufficient to compensate a certain difference of revenue; but they will
compensate a certain difference only; and if the rent of land should fall short of the
interest of money by a greater difference, nobody would buy land, which would soon
reduce its ordinary price. On the contrary, if the advantages should much more than
compensate the difference, everybody would buy land, which again would soon raise its
ordinary price. When interest was at ten per cent. land was commonly sold for ten or
twelve years purchase. As interest sunk to six, five, and four per cent. the price of land
rose to twenty, five-and-twenty, and thirty years purchase. The market rate of interest is
higher in France than in England, and the common price of land is lower. In England
it commonly sells at thirty, in France at twenty years purchase.

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CHAPTER V.

OF THE DIFFERENT
EMPLOYMENTS OF CAPITALS.

hough all capitals are destined for the maintenance of productive labour only, yet

the quantity of that labour which equal capitals are capable of putting into motion,
varies extremely according to the diversity of their employment; as does likewise the
value which that employment adds to the annual produce of the land and labour of
the country.

A capital may be employed in four different ways; either, first, in procuring the rude
produce annually required for the use and consumption of the society; or, secondly, in
manufacturing and preparing that rude produce for immediate use and consumption;
or, thirdly in transporting either the rude or manufactured produce from the places
where they abound to those where they are wanted; or, lastly, in dividing particular
portions of either into such small parcels as suit the occasional demands of those
who want them. In the first way are employed the capitals of all those who undertake
improvement or cultivation of lands, mines, or fisheries; in the second, those of all
master manufacturers; in the third, those of all wholesale merchants; and in the fourth,
those of all retailers. It is difficult to conceive that a capital should be employed in any
way which may not be classed under some one or other of those four.

Fach of those four methods of employing a capital is essentially necessary, either
to the existence or extension of the other three, or to the general conveniency of the
society.

Unless a capital was employed in furnishing rude produce to a certain degree of
abundance, neither manufactures nor trade of any kind could exist.

Unless a capital was employed in manufacturing that part of the rude produce
which requires a good deal of preparation before it can be fit for use and consumption,
it either would never be produced, because there could be no demand fot it; or if it was
produced spontaneously, it would be of no value in exchange, and could add nothing
to the wealth of the society.

Unless a capital was employed in transporting either the rude or manufactured
produce from the places where it abounds to those where it is wanted, no more of either
could be produced than was necessary for the consumption of the neighbourhood.
The capital of the merchant exchanges the surplus produce of one place for that of
another, and thus encourages the industry, and increases the enjoyments of both.

Unless a capital was employed in breaking and dividing certain portions either

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of the rude or manufactured produce into such small parcels as suit the occasional
demands of those who want them, every man would be obliged to purchase a greater
quantity of the goods he wanted than his immediate occasions required. If there was
no such trade as a butcher, for example, every man would be obliged to purchase a
whole ox or a whole sheep at a time. This would generally be inconvenient to the rich,
and much mote so to the poor. If a poor workman was obliged to purchase a month’s
or six months’ provisions at a time, a great part of the stock which he employs as a
capital in the instruments of his trade, or in the furniture of his shop, and which yields
him a revenue, he would be forced to place in that part of his stock which is reserved
for immediate consumption, and which yields him no revenue. Nothing can be more
convenient for such a person than to be able to purchase his subsistence from day to
day, or even from hour to hour, as he wants it. He is thereby enabled to employ almost
his whole stock as a capital. He is thus enabled to furnish work to a greater value; and
the profit which he makes by it in this way much more than compensates the additional
price which the profit of the retailer imposes upon the goods. The prejudices of some
political writers against shopkeepers and tradesmen are altogether without foundation.
So far is it from being necessary either to tax them, or to restrict their numbers, that
they can never be multiplied so as to hurt the public, though they may so as to hurt
one another. The quantity of grocery goods, for example, which can be sold in a
particular town, is limited by the demand of that town and its neighbourhood. The
capital, therefore, which can be employed in the grocery trade, cannot exceed what
is sufficient to purchase that quantity. If this capital is divided between two different
grocers, their competition will tend to make both of them sell cheaper than if it were
in the hands of one only; and if it were divided among twenty, their competition would
be just so much the greater, and the chance of their combining together, in order to
taise the price, just so much the less. Their competition might, perhaps, ruin some
of themselves; but to take care of this, is the business of the parties concerned, and
‘it may safely be trusted to their discretion. It can never hurt either the consumer or
the producer; on the contrary, it must tend to make the retailers both sell cheaper and
buy dearer, than if the whole trade was monopolized by one or two persons. Some of
them, perhaps, may sometimes decoy a weak customer to buy what he has no occasion
for. This evil, however, is of too little importance to deserve the public attention, nor
would it necessarily be prevented by restricting their numbers. It is not the multitude
of alehouses, to give the must suspicious example, that occasions a general disposition
to drunkenness among the common people; but that disposition, arising from other
causes, necessarily gives employment to a multitude of alehouses.

The persons whose capitals are employed in any of those four ways, are themselves
productive labourers. Their labour, when properly directed, fixes and realizes itself in
the subject or vendible commodity upon which it is bestowed, and generally adds to
its price the value at least of their own maintenance and consumption. The profits of
the farmer, of the manufacturer, of the merchant, and retailer, are all drawn from the
price of the goods which the two first produce, and the two last buy and sell. Equal

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capitals, however, employed in each of those four different ways, will immediately put
into motion very different quantities of productive labour; and augment, too, in very
different proportions, the value of the annual produce of the land and labour of the
society to which they belong.

The capital of the retailer replaces, together with its profits, that of the merchant
of whom he purchases goods, and thereby enables him to continue his business. The
retailer himself is the only productive labourer whom it immediately employs. In his
profit consists the whole value which its employment adds to the annual produce of
the land and labour of the society.

The capital of the wholesale merchant replaces, together with their profits, the
capital’s of the farmers and manufacturers of whom he purchases the rude and
manufactured produce which he deals in, and thereby enables them to continue their
respective trades. It is by this service chiefly that he contributes indirectly to support
the productive labour of the society, and to increase the value of its annual produce.
His capital employs, too, the sailors and carriers who transport his goods from one
place to another; and it augments the price of those goods by the value, not only of
his profits, but of their wages. This is all the productive labour which it immediately
puts into motion, and all the value which it immediately adds to the annual produce.
Its operation in both these respects is a good deal superior to that of the capital of the
retailer.

Part of the capital of the master manufacturer is employed as a fixed capital in the
instruments of his trade, and replaces, together with its profits, that of some other
artificer of whom he purchases them. Part of his circulating capital is employed in
purchasing materials, and replaces, with their profits, the capitals of the farmers and
miners of whom he purchases them. But a great part of it is always, either annually, or
in a much shorter period, distributed among the different workmen whom he employs.
It augments the value of those materials by their wages, and by their masters’ profits
upon the whole stock of wages, materials, and instruments of trade employed in
the business. It puts immediately into motion, therefore, a much greater quantity of
productive labour, and adds a much greater value to the annual produce of the land
and labour of the society, than an equal capital in the hands of any wholesale merchant.

No equal capital puts into motion a greater quantity of productive labour than that
of the farmer. Not only his labouring servants, but his labouring cattle, are productive
labourers. In agriculture, too, Nature labours along with man; and though her labour
costs no expense, its produce has its value, as well as that of the most expensive
workmen. The most important operations of agriculture seem intended, not so much
to increase, though they do that too, as to direct the fertility of Nature towards the
production of the plants most profitable to man. A field overgrown with briars and
brambles, may frequently produce as great a quantity of vegetables as the best cultivated
vineyard or corn field. Planting and tillage frequently regulate more than they animate
the active fertility of Nature; and after all their labour, a great part of the work always
remains to be done by her. The labourers and labouring cattle, therefore, employed in

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agriculture, not only occasion, like the workmen in manufactures, the reproduction of
a value equal to their own consumption, or to the capital which employs them, together
with its owner’s profits, but of a much gteater value. Over and above the capital of
the farmer, and all its profits, they regularly occasion the reproduction of the rent of
the landlord. This rent may be considered as the produce of those powers of Nature,
the use of which the landlord lends to the farmer. It is greater or smaller, according to
the supposed extent of those powers, or, in other words, according to the supposed
natural or improved fertility of the land. It is the work of Nature which remains, after
deducting or compensating every thing which can be regarded as the work of man. It is
seldom less than a fourth, and frequently more than a third, of the whole produce. No
equal quantity of productive labour employed in manufactures, can ever occasion so
great reproduction. In them Nature does nothing; man does all; and the reproduction
must always be in proportion to the strength of the agents that occasion it. The capital
employed in agriculture, therefore, not only puts into motion a greater quantity of
productive labour than any equal capital employed in manufactures; but in proportion,
too, to the quantity of productive labour which it employs, it adds a much greater value
to the annual produce of the land and labour of the country, to the real wealth and
revenue of its inhabitants. Of all the ways in which a capital can be employed, it is by
far the most advantageous to society.

The capitals employed in the agriculture and in the retail trade of any society, must
always reside within that society. Their employment is confined almost to a precise
spot, to the farm, and to the shop of the retailer. They must generally, too, though there
are some exceptions to this, belong to resident members of the society.

The capital of a wholesale merchant, on the contrary, seems to have no fixed or
necessary residence anywhere, but may wander about from place to place, according as
it can either buy cheap or sell dear.

The capital of the manufacturer must, no doubt, reside where the manufacture

‘is catried on; but where this shall be, is not always necessarily determined. It may
frequently be at a great distance, both from the place where the materials grow, and
from that where the complete manufacture is consumed. Lyons is very distant, both
from the places which afford the materials of its manufactures, and from those which
consume them. The people of fashion in Sicily are clothed in silks made in other
countries, from the materials which their own produces. Part of the wool of Spain is
manufactured in Great Britain, and some part of that cloth is afterwards sent back to
Spain.

Whether the merchant whose capital exports the surplus produce of any society,
be a native or a foreigner, is of very little importance. If he is a foreigner, the number
of their productive labourers is necessarily less than if he had been a native, by one
man only; and the value of their annual produce, by the profits of that one man. The
sailors or carriers whom he employs, may still belong indifferently either to his country,
or to their country, or to some third country, in the same manner as if he had been a
native. The capital of a foreigner gives a value to their surplus produce equally with

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that of a native, by exchanging it for something for which there is a demand at home.
It as effectually replaces the capital of the person who produces that surplus, and
as effectually enables him to continue his business, the service by which the capital
of a wholesale merchant chiefly contributes to support the productive labour, and to
augment the value of the annual produce of the society to which he belongs.

It is of more consequence that the capital of the manufacturer should reside within
the country. It necessarily puts into motion a greater quantity of productive labour,
and adds a greater value to the annual produce of the land and labour of the society.
It may, however, be very useful to the country, though it should not reside within it.
The capitals of the British manufacturers who work up the flax and hemp annually
imported from the coasts of the Baltic, are surely very useful to the countries which
produce them. Those materials are a part of the surplus produce of those countries,
which, unless it was annually exchanged for something which is in demand here, would
be of no value, and would soon cease to be produced. The merchants who export
it, replace the capitals of the people who produce it, and thereby encourage them to
continue the production; and the British manufacturers replace the capitals of those
merchants.

A particular country, in the same manner as a particular person, may frequently
not have capital sufficient both to improve and cultivate all its lands, to manufacture
and prepare their whole rude produce for immediate use and consumption, and to
transport the surplus part either of the rude or manufactured produce to those distant
markets, where it can be exchanged for something for which there is a demand at
home. The inhabitants of many different parts of Great Britain have not capital
sufficient to improve and cultivate all their lands. The wool of the southern counties
of Scotland is, a great part of it, after a long land carriage through very bad roads,
manufactured in Yorkshire, for want of a capital to manufacture it at home. There
are many little manufacturing towns in Great Britain, of which the inhabitants have
not capital sufficient to transport the produce of their own industry to those distant
markets where there is demand and consumption for it. If there are any merchants
among them, they are, properly, only the agents of wealthier merchants who reside in
some of the great commercial cities.

When the capital of any country is not sufficient for all those three purposes, in
proportion as a greater share of it is employed in agriculture, the greater will be the
quantity of productive labour which it puts into motion within the country; as will
likewise be the value which its employment adds to the annual produce of the land and
labour of the society. After agriculture, the capital employed in manufactures puts into
motion the greatest quantity of productive labour, and adds the greatest value to the
annual produce. That which is employed in the trade of exportation has the least effect
of any of the three.

The country, indeed, which has not capital sufficient for all those three purposes,
has not arrived at that degree of opulence for which it seems naturally destined. To
attempt, however, prematurely, and with an insufficient capital, to do all the three, is

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certainly not the shortest way for a society, no more than it would be for an individual,
to acquire a sufficient one. The capital of all the individuals of a nation has its limits,
in the same manner as that of a single individual, and is capable of executing only
certain purposes. The capital of all the individuals of a nation is increased in the same
manner as that of a single individual, by their continually accumulating and adding to
it whatever they save out of their revenue. It is likely to increase the fastest, therefore,
when it is employed in the way that affords the greatest revenue to all the inhabitants or
the country, as they will thus be enabled to make the greatest savings. But the revenue
of all the inhabitants of the country is necessarily in proportion to the value of the
annual produce of their land and labour.

It has been the principal cause of the rapid progress of our American colonies
towards wealth and greatness, that almost their whole capitals have hitherto been
employed in agriculture. They have no manufactures, those household and coarser
manufactures excepted, which necessarily accompany the progress of agriculture, and
which are the work of the women and children in every private family. The greater part,
both of the exportation and coasting trade of America, is carried on by the capitals of
merchants who reside in Great Britain. Even the stores and warehouses from which
goods are retailed in some provinces, particularly in Virginia and Maryland, belong
many of them to merchants who reside in the mother country, and afford one of the
few instances of the retail trade of a society being carried on by the capitals of those
who are not resident members of it. Were the Americans, either by combination, or by
any other sort of violence, to stop the importation of European manufactures, and, by
thus giving a monopoly to such of their own countrymen as could manufacture the like
goods, divert any considerable part of their capital into this employment, they would
retard, instead of accelerating, the further increase in the value of their annual produce,
and would obstruct, instead of promoting, the progress of their country towards real
wealth and greatness. This would be still more the case, were they to attempt, in the
‘same manner, to monopolize to themselves their whole exportation trade.

The course of human prosperity, indeed, seems scarce ever to have been of so
long continuance as to unable any great country to acquire capital sufficient for all
those three purposes; unless, perhaps, we give credit to the wonderful accounts of
the wealth and cultivation of China, of those of ancient Egypt, and of the ancient
state of Indostan. Even those three countries, the wealthiest, according to all accounts,
that ever were in the world, are chiefly renowned for their superiority in agriculture
and manufactures. They do not appear to have been eminent for foreign trade. The
ancient Egyptians had a superstitious antipathy to the sea; a superstition nearly of the
same kind prevails among the Indians; and the Chinese have never excelled in foreign
commerce. The greater part of the surplus produce of all those three countries seems
to have been always exported by foreigners, who gave in exchange for it something else,
for which they found a demand there, frequently gold and silver.

It is thus that the same capital will in any country put into motion a greater or
smaller quantity of productive labour, and add a greater or smaller value to the annual

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THE WEALTH OF NATIONS

produce of its land and labour, according to the different proportions in which it is
employed in agriculture, manufactures, and wholesale trade. The difference, too, is very
great, according to the different sorts of wholesale trade in which any part of it is
employed.

All wholesale trade, all buying in order to sell again by wholesale, maybe reduced to
three different sorts: the home trade, the foreign trade of consumption, and the carrying
trade. The home trade is employed in purchasing in one part of the same country, and
selling in another, the produce of the industry of that country. It comprehends both
the inland and the coasting trade. The foreign trade of consumption is employed in
purchasing foreign goods for home consumption. The carrying trade is employed in
transacting the commerce of foreign countries, or in carrying the surplus produce of
one to another.

The capital which is employed in purchasing in one part of the country, in order
to sell in another, the produce of the industry of that country, generally replaces,
by every such operation, two distinct capitals, that had both been employed in the
agriculture or manufactures of that country, and thereby enables them to continue
that employment. When it sends out from the residence of the merchant a certain
value of commodities, it generally brings hack in return at least an equal value of
other commodities. When both are the produce of domestic industry, it necessarily
replaces, by every such operation, two distinct capitals, which had both been employed
in supporting productive labour, and thereby enables them to continue that support.
The capital which sends Scotch manufactures to London, and brings back English
corn and manufactures to Edinburgh, necessarily replaces, by every such operation,
two British capitals, which had both been employed in the agriculture or manufactures
of Great Britain.

The capital employed in purchasing foreign goods for home consumption, when
this purchase is made with the produce of domestic industry, replaces, too, by every
such operation, two distinct capitals; but one of them only is employed in supporting
domestic industry. The capital which sends British goods to Portugal, and brings
back Portuguese goods to Great Britain, replaces, by every such operation, only one
British capital. The other is a Portuguese one. Though the returns, therefore, of the
foreign trade of consumption, should be as quick as those of the home trade, the
capital employed in it will give but one half of the encouragement to the industry or
productive labour of the country.

But the returns of the foreign trade of consumption are very seldom so quick as
those of the home trade. The returns of the home trade generally come in before the
end of the year, and sometimes three or four times in the year. The returns of the foreign
trade of consumption seldom come in before the end of the year, and sometimes not
till after two or three years. A capital, therefore, employed in the home trade, will
sometimes make twelve operations, or be sent out and returned twelve times, before
a capital employed in the foreign trade of consumption has made one. If the capitals
are equal, therefore, the one will give four-and-twenty times more encouragement and

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support to the industry of the country than the other.

The foreign goods for home consumption may sometimes be purchased, not
with the produce of domestic industry but with some other foreign goods. These last,
however, must have been purchased, either immediately with the produce of domestic
industry, or with something else that had been purchased with it; for, the case of war
and conquest excepted, foreign goods can never be acquired, but in exchange for
something that had been produced at home, either immediately, or after two or more
different exchanges. The effects, therefore, of a capital employed in such a round-
about foreign trade of consumption, are, in every respect, the same as those of one
employed in the most direct trade of the same kind, except that the final returns are
likely to be still more distant, as they must depend upon the returns of two or three
distinct foreign trades. If the hemp and flax of Riga are purchased with the tobacco of
Virginia, which had been purchased with British manufactures, the merchant must wait
for the returns of two distinct foreign trades, before he can employ the same capital
in repurchasing a like quantity of British manufactures. If the tobacco of Virginia
had been purchased, not with British manufactures, but with the sugar and rum of
Jamaica, which had been purchased with those manufactures, he must wait for the
returns of three. If those two or three distinct foreign trades should happen to be
carried on by two or three distinct merchants, of whom the second buys the goods
imported by the first, and the third buys those imported by the second, in order to
export them again, each merchant, indeed, will, in this case, receive the returns of his
own capital more quickly; but the final returns of the whole capital employed in the
trade will be just as slow as ever. Whether the whole capital employed in such a round
about trade belong to one merchant or to three, can make no difference with regard
to the country, though it may with regard to the particular merchants. Three times a
greater capital must in both cases be employed, in order to exchange a certain value of
British manufactures for a certain quantity of flax and hemp, than would have been
necessary, had the manufactures and the flax and hemp been directly exchanged for one
another. The whole capital employed, therefore, in such a round-about foreign trade
of consumption, will generally give less encouragement and support to the productive
labour of the country, than an equal capital employed in a more direct trade of the
same kind.

Whatever be the foreign commodity with which the foreign goods for home
consumption are purchased, it can occasion no essential difference, either in the nature
of the trade, or in the encouragement and support which it can give to the productive
labour of the country from which it is carried on. If they are purchased with the gold
of Brazil, for example, or with the silver of Peru, this gold and silver, like the tobacco
of Virginia, must have been purchased with something that either was the produce
of the industry of the country, or that had been purchased with something else that
was so. So far, therefore, as the productive labour of the country is concerned, the
foreign trade of consumption, which is carried on by means of gold and silver, has all
the advantages and all the inconveniencies of any other equally round-about foreign

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THE WEALTH OF NATIONS ~—

trade of consumption; and will replace, just as fast, or just as slow, the capital which
is immediately employed in supporting that productive labour. It seems even to have
one advantage over any other equally round-about foreign trade. The transportation
of those metals from one place to another, on account of their small bulk and great
value, is less expensive than that of almost any other foreign goods of equal value.
Their freight is much less, and their insurance not greater; and no goods, besides, are
less liable to suffer by the carriage. An equal quantity of foreign goods, therefore, may
frequently be purchased with a smaller quantity of the produce of domestic industry,
by the intervention of gold and silver, than by that of any other foreign goods. The
demand of the country may frequently, in this manner, be supplied more completely,
and at a smaller expense, than in any other. Whether, by the continual exportation of
those metals, a trade of this kind is likely to impoverish the country from which it is
carried on in any other way, I shall have occasion to examine at great length hereafter.
That part of the capital of any country which is employed in the carrying trade, is
altogether withdrawn from supporting the productive labour of that particular country,
to support that of some foreign countries. Though it may replace, by every operation,
two distinct capitals, yet neither of them belongs to that particular country. The capital
of the Dutch merchant, which carries the corn of Poland to Portugal, and brings
back the fruits and wines of Portugal to Poland, replaces by every such operation two
capitals, neither of which had been employed in supporting the productive labour of
Holland; but one of them in supporting that of Poland, and the other that of Portugal.
The profits only return regularly to Holland, and constitute the whole addition which
this trade necessarily makes to the annual produce of the land and labour of that
country. When, indeed, the carrying trade of any particular country is carried on with
the ships and sailors of that country, that part of the capital employed in it which pays
the freight is distributed among, and puts into motion, a certain number of productive
labourers of that country. Almost all nations that have had any considerable share
of the carrying trade have, in fact, carried it on in this manner. The trade itself has
probably derived its name from it, the people of such countries being the carriers to
other countries. It does not, however, seem essential to the nature of the trade that it
should be so. A Dutch merchant may, for example, employ his capital in transacting the
commetce of Poland and Portugal, by carrying part of the surplus produce of the one
to the other, not in Dutch, but in British bottoms. It maybe presumed, that he actually
does so upon some particular occasions. It is upon this account, however, that the
carrying trade has been supposed peculiarly advantageous to such a country as Great
Britain, of which the defence and security depend upon the number of its sailors and
shipping. But the same capital may employ as many sailors and shipping, either in the
foreign trade of consumption, or even in the home trade, when carried on by coasting
vessels, as it could in the carrying trade. The number of sailors and shipping which any
particular capital can employ, does not depend upon the nature of the trade, but partly
upon the bulk of the goods, in proportion to their value, and partly upon the distance
of the ports between which they are to be carried; chiefly upon the former of those

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two circumstances. The coal trade from Newcastle to London, for example, employs
more shipping than all the carrying trade of England, though the ports are at no great
distance. To force, therefore, by extraordinary encouragements, a larger share of the
capital of any country into the carrying trade, than what would naturally go to it, will
not always necessarily increase the shipping of that country.

The capital, therefore, employed in the home trade of any country, will generally
give encouragement and support to a greater quantity of productive labour in that
country, and increase the value of its annual produce, more than an equal capital
employed in the foreign trade of consumption; and the capital employed in this latter
trade has, in both these respects, a still greater advantage over an equal capital employed
in the carrying trade. The riches, and so far as power depends upon riches, the power
of every country must always be in proportion to the value of its annual produce, the
fund from which all taxes must ultimately be paid. But the great object of the political
economy of every country, is to increase the riches and power of that country. It ought,
therefore, to give no preference nor superior encouragement to the foreign trade of
consumption above the home trade, nor.to the carrying trade above either of the other
two. It ought neither to force nor to allure into either of those two channels a greater
share of the capital of the country, than what would naturally flow into them of its
own accord.

Fach of those different branches of trade, however, is not only advantageous,
but necessary and unavoidable, when the course of things, without any constraint or
violence, naturally introduces it.

When the produce of any particular branch of industry exceeds what the demand
of the country requires, the surplus must be sent abroad, and exchanged for something
for which there is a demand at home. Without such exportation, a part of the productive
labour of the country must cease, and the value of its annual produce diminish. The
land and labour of Great Britain produce generally more corn, woollens, and hardware,
than the demand of the home market requires. The surplus part of them, therefore,
must be sent abroad, and exchanged for something for which there is a demand at
home. It is only by means of such exportation, that this surplus can acquired value
sufficient to compensate the labour and expense of producing it. The neighbourhood
of the sea-coast, and the banks of all navigable rivers, are advantageous situations for
industry, only because they facilitate the exportation and exchange of such surplus
produce for something else which is more in demand there.

When the foreign goods which are thus purchased with the surplus produce of
domestic industry exceed the demand of the home market, the surplus part of them
must be sent abroad again, and exchanged for something more in demand at home.
About 96,000 hogsheads of tobacco are annually purchased in Virginia and Maryland
with a part of the surplus produce of British industry. But the demand of Great
Britain does not require, perhaps, more than 14,000. If the remaining 82,000, therefore,
could not be sent abroad, and exchanged for something more in demand at home, the
importation of them must cease immediately, and with it the productive labour of all

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THE WEALTH OF NATIONS

those inhabitants of Great Britain who are at present employed in preparing the goods
with which these 82,000 hogsheads are annually purchased. Those goods, which are
part of the produce of the land and labour of Great Britain, having no market at home,
and being deprived of that which they had abroad, must cease to be produced. The
most round-about foreign trade of consumption, therefore, may, upon some occasions,
be as necessary for supporting the productive labour of the country, and the value of
its annual produce, as the most direct.

When the capital stock of any country is increased to such a degree that it cannot
be all employed in supplying the consumption, and supporting the productive labour of
that particular country, the surplus part of it naturally disgorges itself into the carrying
trade, and is employed in performing the same offices to other countries. The carrying
trade is the natural effect and symptom of great national wealth; but it does not seem
to be the natural cause of it. Those statesmen who have been disposed to favour it
with particular encouragement, seem to have mistaken the effect and symptom for
the cause. Holland, in proportion to the extent of the land and the number of it’s
inhabitants, by far the richest country in Europe, has accordingly the greatest share of
the carrying trade of Europe. England, perhaps the second richest country of Europe,
is likewise supposed to have a considerable share in it; though what commonly passes
for the carrying trade of England will frequently, perhaps, be found to be no more than
a round-about foreign trade of consumption. Such are, in a great measure, the trades
which carry the goods of the East and West Indies and of America to the different
European markets. Those goods are generally purchased, either immediately with the
produce of British industry, or with something else which had been purchased with
that produce, and the final returns of those trades are generally used or consumed in
Great Britain. The trade which is carried on in British bottoms between the different
ports of the Mediterranean, and some trade of the same kind carried on by British
merchants between the different ports of India, make, perhaps, the principal branches
of what is properly the carrying trade of Great Britain.

The extent of the home trade, and of the capital which can be employed in it, is
necessarily limited by the value of the surplus produce of all those distant places within
the country which have occasion to exchange their respective productions with one
another; that of the foreign trade of consumption, by the value of the surplus produce
of the whole country, and of what can be purchased with it; that of the carrying trade,
by the value of the surplus produce of all the different countries in the world. Its
possible extent, therefore, is in a manner infinite in comparison of that of the other
two, and is capable of absorbing the greatest capitals.

The consideration of his own private profit is the sole motive which determines
the owner of any capital to employ it either in agriculture, in manufactures, or in
some particular branch of the wholesale or retail trade. The different quantities of
productive labour which it may put into motion, and the different values which it
may add to the annual produce of the land and labour of the society, according as it
is employed in one or other of those different ways, never enter into his thoughts. In

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countries, therefore, where agriculture is the most profitable of all employments, and
farming and improving the most direct roads to a splendid fortune, the capitals of
individuals will naturally be employed in the manner most advantageous to the whole
society. The profits of agriculture, however, seem to have no superiority over those of
other employments in any part of Europe. Projectors, indeed, in every corner of it,
have, within these few years, amused the public with most magnificent accounts of the
profits to be made by the cultivation and improvement of land. Without entering into
any particular discussion of their calculations, a very simple observation may satisfy us
that the result of them must be false. We see, every day, the most splendid fortunes,
that have been acquired in the course of a single life, by trade and manufactures,
frequently from a very small capital, sometimes from no capital. A single instance of
such a fortune, acquired by agriculture in the same time, and from such a capital, has
not, perhaps, occurred in Europe, during the course of the present century. In all the
great countries of Europe, however, much good land still remains uncultivated; and the
greater patt of what is cultivated, is far from being improved to the degree of which
it is capable. Agriculture, therefore, is almost everywhere capable of absorbing a much
greater capital than has ever yet been employed in it. What circumstances in the policy
of Europe have given the trades which are carried on in towns so great an advantage
over that which is carried on in the country, that private persons frequently find it more
for their advantage to employ their capitals in the most distant carrying trades of Asia
and America than in the improvement and cultivation of the most fertile fields in their

own neighbourhood, I shall endeavour to explain at full length in the two following
books.

THE WEALTH OF NATIONS

BOOK III.

OF THE DIFFERENT PROGRESS OF
OPULENCE IN DIFFERENT NATIONS

CHAPTER I.

OF THE NATURAL PROGRESS
OF OPULENCE.

he great commerce of every civilized society is that carried on between the

inhabitants of the town and those of the country. It consists in the exchange of
rude for manufactured produce, either immediately, or by the intervention of money,
or of some sort of paper which represents money. The country supplies the town
with the means of subsistence and the materials of manufacture. The town repays
this supply, by sending back a part of the manufactured produce to the inhabitants
of the country. The town, in which there neither is nor can be any reproduction of
substances, may very properly be said to gain its whole wealth and subsistence from the
country. We must not, however, upon this account, imagine that the gain of the town is
the loss of the country. The gains of both are mutual and reciprocal, and the division
of labour is in this, as in all other cases, advantageous to all the different persons
employed in the various occupations into which it is subdivided. The inhabitants of
the country purchase of the town a greater quantity of manufactured goods with the
produce of a much smaller quantity of their own labour, than they must have employed
had they attempted to prepare them themselves. The town affords a market for the
surplus produce of the country, or what is over and above the maintenance of the
cultivators; and it is there that the inhabitants of the country exchange it for something
else which is in demand among them. The greater the number and revenue of the
inhabitants of the town, the more extensive is the market which it affords to those of
the country; and the more extensive that market, it is always the more advantageous to
a great number. The corn which grows within a mile of the town, sells there for the
same price with that which comes from twenty miles distance. But the price of the

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latter must, generally, not only pay the expense of raising it and bringing it to market,
but afford, too, the ordinary profits of agriculture to the farmer. The proprietors and
cultivators of the country, therefore, which lies in the neighbourhood of the town,
over and above the ordinary profits of agriculture, gain, in the price of what they sell,
the whole value of the carriage of the like produce that is brought from more distant
parts; and they save, besides, the whole value of this carriage in the price of what they
buy. Compare the cultivation of the lands in the neighbourhood of any considerable
town, with that of those which lie at some distance from it, and you will easily satisfy
yourself bow much the country is benefited by the commerce of the town. Among all
the absurd speculations that have been propagated concerning the balance of trade, it
has never been pretended that either the country loses by its commerce with the town,
or the town by that with the country which maintains it.

As subsistence is, in the nature of things, prior to conveniency and luxury, so the
industry which procures the former, must necessarily be prior to that which ministers
to the latter. The cultivation and improvement of the country, therefore, which affords
subsistence, must, necessarily, be prior to the increase of the town, which furnishes
only the means of conveniency and luxury. It is the surplus produce of the country
only, or what is over and above the maintenance of the cultivators, that constitutes the
subsistence of the town, which can therefore increase only with the increase of the
surplus produce. The town, indeed, may not always derive its whole subsistence from
the country in its neighbourhood, or even from the territory to which it belongs, but
from very distant countries; and this, though it forms no exception from the general
tule, has occasioned considerable variations in the progress of opulence in different
ages and nations.

That order of things which necessity imposes, in general, though not in every
particular country, is in every particular country promoted by the natural inclinations
of man. If human institutions had never thwarted those natural inclinations, the towns
‘could nowhere have increased beyond what the improvement and cultivation of the
territory in which they were situated could support; till such time, at least, as the whole
of that territory was completely cultivated and improved. Upon equal, or nearly equal
profits, most men will choose to employ their capitals, rather in the improvement and
cultivation of land, than either in manufactures or in foreign trade. The man who
employs his capital in land, has it more under his view and command; and his fortune
is much less liable to accidents than that of the trader, who is obliged frequently to
commit it, not only to the winds and the waves, but to the more uncertain elements
of human folly and injustice, by giving great credits, in distant countries, to men with
whose character and situation he can seldom be thoroughly acquainted. The capital of
the landlord, on the contrary, which is fixed in the improvement of his land, seems to be
as well secured as the nature of human affairs can admit of. The beauty of the country,
besides, the pleasure of a country life, the tranquillity of mind which it promises, and,
wherever the injustice of human laws does not disturb it, the independency which it
really affords, have charms that, more or less, attract everybody; and as to cultivate

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THE WEALTH OF NATIONS

the ground was the original destination of man, so, in every stage of his existence, he
seems to retain a predilection for this primitive employment.

Without the assistance of some artificers, indeed, the cultivation of land cannot be
carried on, but with great inconveniency and continual interruption. Smiths, carpenters,
wheelwrights and ploughwrights, masons and bricklayers, tanners, shoemakers, and
tailors, are people whose service the farmer has frequent occasion for. Such artificers,
too, stand occasionally in need of the assistance of one another; and as their residence
is not, like that of the farmer, necessarily tied down to a precise spot, they naturally
settle in the neighbourhood of one another, and thus form a small town or village.
The butcher, the brewer, and the baker, soon join them, together with many other
attificers and retailers, necessary or useful for supplying their occasional wants, and
who contribute still further to augment the town. The inhabitants of the town,
and those of the country, are mutually the servants of one another. The town is a
continual fair or market, to which the inhabitants of the country resort, in order to
exchange their rude for manufactured produce. It is this commerce which supplies the
inhabitants of the town, both with the materials of their work, and the means of their
subsistence. The quantity of the finished work which they sell to the inhabitants of
the country, necessarily regulates the quantity of the materials and provisions which
they buy. Neither their employment nor subsistence, therefore, can augment, but in
proportion to the augmentation of the demand from the country for finished work;
and this demand can augment only in proportion to the extension of improvement
and cultivation. Had human institutions, therefore, never disturbed the natural course
of things, the progressive wealth and increase of the towns would, in every political
society, be consequential, and in proportion to the improvement and cultivation of the
territory of country.

In our North American colonies, where uncultivated land is still to be had upon
easy terms, no manufactures for distant sale have ever yet been established in any
of their towns. When an artificer has acquired a little more stock than is necessary
for carrying on his own business in supplying the neighbouring country, he does not,
in North America, attempt to establish with it a manufacture for more distant sale,
but employs it in the purchase and improvement of uncultivated land. From artificer
he becomes planter; and neither the large wages nor the easy subsistence which that
country affords to artificers, can bribe him rather to work for other people than for
himself. He feels that an artificer is the servant of his customers, from whom he derives
his subsistence; but that a planter who cultivates his own land, and derives his necessaty
subsistence from the labour of his own family, is really a master, and independent of
all the world.

In countries, on the contrary, where there is either no uncultivated land, or none
that can be had upon easy terms, every artificer who has acquired more stock than
he can employ in the occasional jobs of the neighbourhood, endeavours to prepare
work for more distant sale. The smith erects some sort of iron, the weaver some sort
of linen or woollen manufactory. Those different manufactures come, in process of

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| time, to be gradually subdivided, and thereby improved and refined in a great variety of
| ways, which may easily be conceived, and which it is therefore unnecessary to explain
| any farther.

In seeking for employment to a capital, manufactures are, upon equal or nearly equal
profits, naturally preferred to foreign commerce, for the same reason that agriculture
is naturally preferred to manufactures. As the capital of the landlord or farmer is more
secure than that of the manufacturer, so the capital of the manufacturer, being at all
times more within his view and command, is more secure than that of the foreign
merchant. In every period, indeed, of every society, the surplus part both of the rude
and manufactured produce, or that for which there is no demand at home, must be sent
abroad, in order to be exchanged for something for which there is some demand at
home. But whether the capital which carries this surplus produce abroad be a foreign
or a domestic one, is of very little importance. If the society has not acquired sufficient
capital, both to cultivate all its lands, and to manufacture in the completest manner
the whole of its rude produce, there is even a considerable advantage that the rude
produce should be exported by a foreign capital, in order that the whole stock of the
society may be employed in more useful purposes. The wealth of ancient Egypt, that
of China and Indostan, sufficiently demonstrate that a nation may attain a very high
degree of opulence, though the greater part of its exportation trade be carried on by
foreigners. The progress of our North American and West Indian colonies, would have
been much less rapid, had no capital but what belonged to themselves been employed
in exporting their surplus produce.

According to the natural course of things, therefore, the greater part of the capital
of every growing society is, first, directed to agriculture, afterwards to manufactures,
and, last of all, to foreign commerce. This order of things is so very natural, that in every
society that had any territory, it has always, I believe, been in some degree observed.
Some of their lands must have been cultivated before any considerable towns could
‘be established, and some sort of coarse industry of the manufacturing kind must have
been carried on in those towns, before they could well think of employing themselves
in foreign commerce.

But though this natural order of things must have taken place in some degree in
every such society, it has, in all the modern states of Europe, been in many respects
entirely inverted. The foreign commerce of some of their cities has introduced all their
finer manufactures, or such as were fit for distant sale; and manufactures and foreign
commerce together have given birth to the principal improvements of agriculture. The
manners and customs which the nature of their original government introduced, and
which remained after that government was greatly altered, necessarily forced them into
this unnatural and retrograde order.

PES)

THE WEALTH OF NATIONS ~

CHAPTER II.

OF THE DISCOURAGEMENT
OF AGRICULTURE IN THE
ANCIENT STATE OF EUROPE,
AFTER THE FALL OF THE
ROMAN EMPIRE.

\ X Then the German and Scythian nations overran the western provinces of the

Roman empire, the confusions which followed so great a revolution lasted for
several centuries. The rapine and violence which the barbarians exercised against the
ancient inhabitants, interrupted the commerce between the towns and the country. The
towns were deserted, and the country was left uncultivated; and the western provinces
of Europe, which had enjoyed a considerable degree of opulence under the Roman
empire, sunk into the lowest state of poverty and barbarism. During the continuance
of those confusions, the chiefs and principal leaders of those nations acquired, or
usurped to themselves, the greater part of the lands of those countries. A great part
of them was uncultivated; but no part of them, whether cultivated or uncultivated, was
left without a proprietor. All of them were engrossed, and the greater part by a few
great proprietors.

This original engrossing of uncultivated lands, though a great, might have been
but a transitory evil. They might soon have been divided again, and broke into small
parcels, either by succession or by alienation. The law of primogeniture hindered them
from being divided by succession; the introduction of entails prevented their being
broke into small parcels by alienation.

When land, like moveables, is considered as the means only of subsistence and
enjoyment, the natural law of succession divides it, like them, among all the children
of the family; of all of whom the subsistence and enjoyment may be supposed equally
dear to the father. This natural law of succession, accordingly, took place among the
Romans who made no more distinction between elder and younger, between male and
female, in the inheritance of lands, than we do in the distribution of moveables. But
when land was considered as the means, not of subsistence merely, but of power and
protection, it was thought better that it should descend undivided to one. In those

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disorderly times, every great landlord was a sort of petty prince. His tenants were
his subjects. He was their judge, and in some respects their legislator in peace and
their leader in war. He made war according to his own discretion, frequently against
his neighbours, and sometimes against his sovereign. The security of a landed estate,
therefore, the protection which its owner could afford to those who dwelt on it,
depended upon its greatness. To divide it was to ruin it, and to expose every part of
it to be oppressed and swallowed up by the incursions of its neighbours. The law of
primogeniture, therefore, came to take place, not immediately indeed, but in process
of time, in the succession of landed estates, for the same reason that it has generally
taken place in that of monarchies, though not always at their first institution. That
the power, and consequently the security of the monarchy, may not be weakened by
division, it must descend entire to one of the children. To which of them so important
a preference shall be given, must be determined by some general rule, founded not
upon the doubtful distinctions of personal merit, but upon some plain and evident
difference which can admit of no dispute. Among the children of the same family
there can be no indisputable difference but that of sex, and that of age. The male sex
is universally preferred to the female; and when all other things are equal, the elder
everywhere takes place of the younger. Hence the origin of the right of primogeniture,
and of what is called lineal succession.

Laws frequently continue in force long after the circumstances which first gave
occasion to them, and which could alone render them reasonable, are no more. In the
present state of Europe, the proprietor of a single acre of land is as perfectly secure
in his possession as the proprietor of 100,000. The right of primogeniture, however,
still continues to be respected; and as of all institutions it is the fittest to support the
pride of family distinctions, it is still likely to endure for many centuries. In every other
respect, nothing can be more contrary to the real interest of a numerous family, than a
right which, in order to enrich one, beggars all the rest of the children.

Entails are the natural consequences of the law of primogeniture. They were
introduced to preserve a certain lineal succession, of which the law of primogeniture
first gave the idea, and to hinder any part of the original estate from being carried
out of the proposed line, either by gift, or device, or alienation; either by the folly, or
by the misfortune of any of its successive owners. They were altogether unknown to
the Romans. Neither their substitutions, nor fidei commisses, bear any resemblance
to entails, though some French lawyers have thought proper to dress the modern
institution in the language and garb of those ancient ones.

When great landed estates were a sort of principalities, entails might not be
unreasonable. Like what are called the fundamental laws of some monarchies, they
might frequently hinder the security of thousands from being endangered by the
caprice or extravagance of one man. But in the present state of Europe, when small as
well as great estates derive their security from the laws of their country, nothing can be
more completely absurd. They are founded upon the most absurd of all suppositions,
the supposition that every successive generation of men have not an equal right to

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the earth, and to all that it possesses; but that the property of the present generation
should be restrained and regulated according to the fancy of those who died, perhaps
five hundred years ago. Entails, however, are still respected, through the greater part of
Europe; In those countries, particularly, in which noble birth is a necessary qualification
for the enjoyment either of civil or military honours. Entails are thought necessary for
maintaining this exclusive privilege of the nobility to the great offices and honours of
their country; and that order having usurped one unjust advantage over the rest of their
fellow-citizens, lest their poverty should render it ridiculous, it is thought reasonable
that they should have another. The common law of England, indeed, is said to abhor
perpetuities, and they are accordingly more restricted there than in any other European
monarchy; though even England is not altogether without them. In Scotland, more
than one fifth, perhaps more than one third part of the whole lands in the country, are
at present supposed to be under strict entail.

Great tracts of uncultivated land were in this manner not only engrossed by
particular families, but the possibility of their being divided again was as much as
possible precluded for ever. It seldom happens, however, that a great proprietor is a
great improver. In the disorderly times which gave birth to those barbarous institutions,
the great proprietor was sufficiently employed in defending his own territories, or in
extending his jurisdiction and authority over those of his neighbours. He had no leisure
to attend to the cultivation and improvement of land. When the establishment of
law and order afforded him this leisure, he often wanted the inclination, and almost
always the requisite abilities. If the expense of his house and person either equalled
or exceeded his revenue, as it did very frequently, he had no stock to employ in this
manner. If he was an economist, he generally found it more profitable to employ his
annual savings in new purchases than in the improvement of his old estate. To improve
land with profit, like all other commercial projects, requires an exact attention to small
savings and small gains, of which a man born to a great fortune, even though naturally
frugal, is very seldom capable. The situation of such a person naturally disposes him to
attend rather to ornament, which pleases his fancy, than to profit, for which he has so
little occasion. The elegance of his dress, of his equipage, of his house and household
furniture, are objects which, from his infancy, he has been accustomed to have some
anxiety about. The turn of mind which this habit naturally forms, follows him when
he comes to think of the improvement of land. He embellishes, perhaps, four or five
hundred acres in the neighbourhood of his house, at ten times the expense which the
land is worth after all his improvements; and finds, that if he was to improve his whole
estate in the same manner, and he has little taste for any other, he would be a bankrupt
before he had finished the tenth part of it. There still remain, in both parts of the united
kingdom, some great estates which have continued, without interruption, in the hands
of the same family since the times of feudal anarchy. Compare the present condition of
those estates with the possessions of the small proprietors in their neighbourhood, and

you will require no other argument to convince you how unfavourable such extensive
property is to improvement.

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If little improvement was to be expected from such great proprietors, still less was
to be hoped for from those who occupied the land under them. In the ancient state
of Europe, the occupiers of land were all tenants at will. They were all, or almost all,
slaves, but their slavery was of a milder kind than that known among the ancient Greeks
and Romans, or even in our West Indian colonies. They were supposed to belong more
directly to the land than to their master. They could, therefore, be sold with it, but not
separately. They could marry, provided it was with the consent of their master; and
he could not afterwards dissolve the marriage by selling the man and wife to different
persons. If he maimed or murdered any of them, he was liable to some penalty, though
generally but to a small one. They were not, however, capable of acquiring property.
Whatever they acquired was acquired to their master, and he could take it from them
at pleasure. Whatever cultivation and improvement could be carried on by means of
such slaves, was properly carried on by their master. It was at his expense. The seed,
the cattle, and the instruments of husbandry, were all his. It was for his benefit. Such
slaves could acquire nothing but their daily maintenance. It was properly the proprietor
himself, therefore, that in this case occupied his own lands, and cultivated them by
his own bondmen. This species of slavery still subsists in Russia, Poland, Hungary,
Bohemia, Moravia, and other parts of Germany. It is only in the western and south-
western provinces of Europe that it has gradually been abolished altogether.

But if great improvements are seldom to be expected from great proprietors,
they are least of all to be expected when they employ slaves for their workmen. The
experience of all ages and nations, I believe, demonstrates that the work done by slaves,
though it appears to cost only their maintenance, is in the end the dearest of any. A
person who can acquire no property can have no other interest but to eat as much
and to labour as little as possible. Whatever work he does beyond what is sufficient to
purchase his own maintenance, can be squeezed out of him by violence only, and not by
any interest of his own. In ancient Italy, how much the cultivation of corn degenerated,
how unprofitable it became to the master, when it fell under the management of slaves,
is remarked both by Pliny and Columella. In the time of Aristotle, it had not been
much better in ancient Greece. Speaking of the ideal republic described in the laws of
Plato, to maintain 5000 idle men (the number of warriors supposed necessary for its
defence), together with their women and servants, would require, he says, a territory of
boundless extent and fertility, like the plains of Babylon.

The pride of man makes him love to domineer, and nothing mortifies him so much
as to be obliged to condescend to persuade his inferiors. Wherever the law allows it,
and the nature of the work can afford it, therefore, he will generally prefer the service
of slaves to that of freemen. The planting of sugar and tobacco can afford the expense
of slave cultivation. The raising of corn, it seems, in the present times, cannot. In the
English colonies, of which the principal produce is corn, the far greater part of the
work is done by freemen. The late resolution of the Quakers in Pennsylvania, to set
at liberty all their negro slaves, may satisfy us that their number cannot be very great.
Had they made any considerable part of their property, such a resolution could never

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have been agreed to. In our sugar colonies., on the contrary, the whole work is done
by slaves, and in our tobacco colonies a very great part of it. The profits of a sugar
plantation in any of our West Indian colonies, are generally much greater than those of
any other cultivation that is known either in Europe or America; and the profits of a
tobacco plantation, though inferior to those of sugar, are superior to those of corn, as
has already been observed. Both can afford the expense of slave cultivation but sugar
can afford it still better than tobacco. The number of negroes, accordingly, is much
greater, in proportion to that of whites, in our sugar than in our tobacco colonies.

To the slave cultivators of ancient times gradually succeeded a species of farmers,
known at present in France by the name of metayers. They are called in Latin Coloni
Partiarii. They have been so long in disuse in England, that at present I know no English
name for them. The proprietor furnished them with the seed, cattle, and instruments of
husbandry, the whole stock, in short, necessary for cultivating the farm. The produce
was divided equally between the proprietor and the farmer, after setting aside what was
judged necessary for keeping up the stock, which was restored to the proprietor, when
the farmer either quitted or was turned out of the farm.

Land occupied by such tenants is properly cultivated at the expense of the
proprietors, as much as that occupied by slaves. There is, however, one very essential
difference between them. Such tenants, being freemen, are capable of acquiring
property; and having a certain proportion of the produce of the land, they have a
plain interest that the whole produce should be as great as possible, in order that their
own proportion may be so. A slave, on the contrary, who can acquire nothing but his
maintenance, consults his own ease, by making the land produce as little as possible
over and above that maintenance. It is probable that it was partly upon account of
this advantage, and partly upon account of the encroachments which the sovereigns,
always jealous of the great lords, gradually encouraged their villains to make upon
their authority, and which seem, at least, to have been such as rendered this species of
servitude altogether inconvenient, that tenure in villanage gradually wore out through
the greater part of Europe. The time and manner, however, in which so important a
revolution was brought about, is one of the most obscure points in modern history.
The church of Rome claims great merit in it; and it is certain, that so early as the twelfth
century, Alexander IH. published a bull for the general emancipation of slaves. It seems,
however, to have been rather a pious exhortation, than a law to which exact obedience
was required from the faithful. Slavery continued to take place almost universally for
several centuries afterwards, till it was gradually abolished by the joint operation of
the two interests above mentioned; that of the proprietor on the one hand, and that
of the sovereign on the other. A villain, enfranchised, and at the same time allowed to
continue in possession of the land, having no stock of his own, could cultivate it only
by means of what the landlord advanced to him, and must therefore have been what
the French call a metayer.

It could never, however, be the interest even of this last species of cultivators,
to lay out, in the further improvement of the land, any part of the little stock which

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they might save from their own shate of the produce; because the landlord, who laid
out nothing, was to get one half of whatever it produced. The tithe, which is but a
tenth of the produce, is found to be a very great hindrance to improvement. A tax,
therefore, which amounted to one half, must have been an effectual bar to it. It might
be the interest of a metayer to make the land produce as much as could be brought
out of it by means of the stock furnished by the proprietor; but it could never be
his interest to mix any part of his own with it. In France, where five parts out of six
of the whole kingdom are said to be still occupied by this species of cultivators, the
proprietors complain, that their metayers take every opportunity of employing their
master’s cattle rather in carriage than in cultivation; because, in the one case, they get
the whole profits to themselves, in the other they share them with their landlord. This
species of tenants still subsists in some parts of Scotland. They are called steel-bow
tenants. Those ancient English tenants, who are said by Chief-Baron Gilbert and Dr
Blackstone to have been rather bailiffs of the landlord than farmers, properly so called,
were probably of the same kind.

To this species of tenantry succeeded, though by very slow degrees, farmers,
properly so called, who cultivated the land with their own stock, paying a rent certain to
the landlord. When such farmers have a lease for a term of years, they may sometimes
find it for their interest to lay out part of their capital in the further improvement
of the farm; because they may sometimes expect to recover it, with a large profit,
before the expiration of the lease. The possession, even of such farmers, however, was
long extremely precarious, and still is so in many parts of Europe. They could, before
the expiration of their term, be legally ousted of their leases by a new purchaser; in
England, even, by the fictitious action of a common recovery. If they were turned out
illegally by the violence of their master, the action by which they obtained redress was
extremely imperfect. It did not always reinstate them in the possession of the land,
but gave them damages, which never amounted to a real loss. Even in England, the
- country, perhaps of Europe, where the yeomanry has always been most respected, it
was not till about the 14th of Henry VIL. that the action of ejectment was invented, by
which the tenant recovers, not damages only, but possession, and in which his claim is
not necessarily concluded by the uncertain decision of a single assize. This action has
been found so effectual a remedy, that, in the modern practice, when the landlord has
occasion to sue for the possession of the land, he seldom makes use of the actions
which properly belong to him as a landlord, the writ of right or the writ of entry, but
sues in the name of his tenant, by the writ of ejectment. In England, therefore the
security of the tenant is equal to that of the proprietor. In England, besides, a lease
for life of forty shillings a-year value is a freehold, and entitles the lessee to a vote
for a member of parliament; and as a great part of the yeomanry have freeholds of
this kind, the whole order becomes respectable to their landlords, on account of the
political consideration which this gives them. There is, I believe, nowhere in Europe,
except in England, any instance of the tenant building upon the land of which he had
no lease, and trusting that the honour of his landlord would take no advantage of so

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important an improvement. Those laws and customs, so favourable to the yeomanry,
have pethaps contributed more to the present grandeur of England, than all their
boasted regulations of commerce taken together.

The law which secures the longest leases against successors of every kind, is, so far
as I know, peculiar to Great Britain. It was introduced into Scotland so early as 1449,
by a law of James IL. Its beneficial influence, however, has been much obstructed by
entails; the heirs of entail being generally restrained from letting leases for any long
term of years, frequently for more than one year. A late act of parliament has, in
this respect, somewhat slackened their fetters, though they are still by much too strait.
In Scotland, besides, as no leasehold gives a vote for a member of parliament, the
yeomanry are upon this account less respectable to their landlords than in England.

In other parts of Europe, after it was found convenient to secure tenants both
against heirs and purchasers, the term of their security was still limited to a very short
period; in France, for example, to nine years from the commencement of the lease. It
has in that country, indeed, been lately extended to twentyseven, a period still too short
to encourage the tenant to make the most important improvements. The proprietors
of land were anciently the legislators of every part of Europe. The laws relating to land,
therefore, were all calculated for what they supposed the interest of the proprietor. It
was for his interest, they had imagined, that no lease granted by any of his predecessors
should hinder him from enjoying, during a long term of years, the full value of his
land. Avarice and injustice are always short-sighted, and they did not foresee how much
this regulation must obstruct improvement, and thereby hurt, in the long-run, the real
interest of the landlord.

The farmers, too, besides paying the rent, were anciently, it was supposed, bound to
perform a great number of services to the landlord, which were seldom either specified
in the lease, or regulated by any precise rule, but by the use and wont of the manor or
barony. These services, therefore, being almost entirely arbitrary, subjected the tenant
to many vexations. In Scotland the abolition of all services not precisely stipulated
in the lease, has, in the course of a few years, very much altered for the better the
condition of the yeomanry of that country.

The public services to which the yeomanry were bound, were not less arbitrary than
the private ones. To make and maintain the high roads, a servitude which still subsists, I
believe, everywhere, though with different degrees of oppression in different countries,
was not the only one. When the king’s troops, when his household, or his officers of
any kind, passed through any part of the country, the yeomanry were bound to provide
them with horses, carriages, and provisions, at a price regulated by the purveyor. Great
Britain is, I believe, the only monarchy in Europe where the oppression of purveyance
has been entirely abolished. It still subsists in France and Germany.

The public taxes, to which they were subject, were as irregular and oppressive as
the services. The ancient lords, though extremely unwilling to grant, themselves, any
pecuniary aid to their sovereign, easily allowed him to tallage, as they called it, their
tenants, and had not knowledge enough to foresee how much this must, in the end,

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affect their own revenue. The taille, as it still subsists in France may serve as an example
of those ancient tallages. It is a tax upon the supposed profits of the farmer, which
they estimate by the stock that he has upon the farm. It is his interest, therefore, to
appear to have as little as possible, and consequently to employ as little as possible in
its cultivation, and none in its improvement. Should any stock happen to accumulate in
the hands of a French farmer, the taille is almost equal to a prohibition of its ever being
employed upon the land. This tax, besides, is supposed to dishonour whoever is subject
to it, and to degrade him below, not only the rank of a gentleman, but that of a burgher;
and whoever rents the lands of another becomes subject to it. No gentleman, nor even
any burgher, who has stock, will submit to this degradation. This tax, therefore, not
only hinders the stock which accumulates upon the land from being employed in its
improvement, but drives away all other stock from it. The ancient tenths and fifteenths,
so usual in England in former times, seem, so far as they affected the land, to have been
taxes of the same nature with the taille.

Under all these discouragements, little improvement could be expected from the
occupiers of land. That order of people, with all the liberty and security which law
can give, must always improve under great disadvantage. The farmer, compared with
the proprietor, is as a merchant who trades with burrowed money, compared with one
who trades with his own. The stock of both may improve; but that of the one, with
only equal good conduct, must always improve more slowly than that of the other,
on account of the large share of the profits which is consumed by the interest of the
loan. The lands cultivated by the farmer must, in the same manner, with only equal
good conduct, be improved more slowly than those cultivated by the proprietor, on
account of the large share of the produce which is consumed in the rent, and which,
had the farmer been proprietor, he might have employed in the further improvement
of the land. The station of a farmer, besides, is, from the nature of things, inferior to
that of a proprietor. Through the greater part of Europe, the yeomanry are regarded
as an inferior rank of people, even to the better sort of tradesmen and mechanics, and
in all parts of Europe to the great merchants and master manufacturers. It can seldom
happen, therefore, that a man of any considerable stock should quit the superior, in
order to place himself in an inferior station. Even in the present state of Europe,
therefore, little stock is likely to go from any other profession to the improvement
of land in the way of farming. More does, perhaps, in Great Britain than in any other
country, though even there the great stocks which are in some places employed in
farming, have generally been acquired by fanning, the trade, perhaps, in which, of
all others, stock is commonly acquired most slowly. After small proprietors, however,
rich and great farmers are in every country the principal improvers. There are more
such, perhaps, in England than in any other European monarchy. In the republican
governments of Holland, and of Berne in Switzerland, the farmers ate said to be not
inferior to those of England.

The ancient policy of Europe was, over and above all this, unfavourable to the
improvement and cultivation of land, whether carried on by the proprietor or by the

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farmer; first, by the general prohibition of the exportation of corn, without a special
licence, which seems to have been a very universal regulation; and, secondly, by the
restraints which were laid upon the inland commerce, not only of corn, but of almost
every other part of the produce of the farm, by the absurd laws against engrossers,
regraters, and forestallers, and by the privileges of fairs and markets. It has already
been observed in what manner the prohibition of the exportation of corn, together
with some encouragement given to the importation of foreign corn, obstructed the
cultivation of ancient Italy, naturally the most fertile country in Europe, and at that
time the seat of the greatest empire in the world. To what degree such restraints
upon the inland commerce of this commodity, joined to the general prohibition of
exportation, must have discouraged the cultivation of countries less fertile, and less
favourably circumstanced, it is not, perhaps, very easy to imagine.

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CHAPTER III.

OF THE RISE AND PROGRESS
OF CITIES AND TOWNS, AFTER
THE FALL OF THE ROMAN EM-

PIRE.

he inhabitants of cities and towns were, after the fall of the Roman empire, not

more favoured than those of the country. They consisted, indeed, of a very
different order of people from the first inhabitants of the ancient republics of Greece
and Italy. These last were composed chiefly of the proprietors of lands, among whom
the public territory was originally divided, and who found it convenient to build their
houses in the neighbourhood of one another, and to surround them with a wall, for
the sake of common defence. After the fall of the Roman empire, on the contrary, the
proprietors of land seem generally to have lived in fortified castles on their own estates,
and in the midst of their own tenants and dependants. The towns were chiefly inhabited
by tradesmen and mechanics, who seem, in those days, to have been of servile, or very
nearly of servile condition. The privileges which we find granted by ancient charters
to the inhabitants of some of the principal towns in Europe, sufficiently show what

they were before those grants. The people to whom it is granted as a privilege, that they
might give away their own daughters in marriage without the consent of their lord, that
upon their death their own children, and not their lord, should succeed to theit goods,
and that they might dispose of their own effects by will, must, before those grants, have
been either altogether, or very nearly, in the same state of villanage with the occupiers
of land in the country.

They seem, indeed, to have been a very poor, mean set of people, who seemed
to travel about with their goods from place to place, and from fair to fair, like the
hawkers and pedlars of the present times. In all the different countries of Europe then,
in the same manner as in several of the Tartar governments of Asia at present, taxes
used to be levied upon the persons and goods of travellers, when they passed through
certain manors, when they went over certain bridges, when they carried about their
goods from place to place in a fair, when they erected in it a booth or stall to sell them
in. These different taxes were known in England by the names of passage, pontage,
lastage, and stallage. Sometimes the king, sometimes a great lord, who had, it seems,

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upon some occasions, authority to do this, would grant to particular traders, to such
particularly as lived in their own demesnes, a general exemption from such taxes. Such
traders, though in other respects of servile, or very nearly of servile condition, were
upon this account called free traders. They, in return, usually paid to their protector a
sort of annual poll-tax. In those days protection was seldom granted without a valuable
consideration, and this tax might perhaps be considered as compensation for what their
patrons might lose by their exemption from other taxes. At first, both those poll-taxes
and those exemptions seem to have been altogether personal, and to have affected
only particular individuals, during either their lives, or the pleasure of their protectors.
In the very imperfect accounts which have been published from Doomsday-book, of
several of the towns of England, mention is frequently made, sometimes of the tax
which particular burghers paid, each of them, either to the king, or to some other great
lord, for this sort of protection, and sometimes of the general amount only of all those
taxes. {see Brady’s Historical Treatise of Cities and Boroughs, p. 3. etc.}

But how servile soever may have been originally the condition of the inhabitants
of the towns, it appears evidently, that they arrived at liberty and independency much
earlier than the occupiers of land in the country. That part of the king’s revenue which
arose from such poll-taxes in any particular town, used commonly to be let in farm,
during a term of years, for a rent certain, sometimes to the sheriff of the county, and
sometimes to other persons. The burghers themselves frequently got credit enough
to be admitted to farm the revenues of this sort winch arose out of their own town,
they becoming jointly and severally answerable for the whole rent. {See Madox, Firma
Burgi, p. 18; also History of the Exchequer, chap. 10, sect. v, p. 223, first edition.}
To let a farm in this manner, was quite agreeable to the usual economy of, I believe,
the sovereigns of all the different countries of Europe, who used frequently to let
whole manors to all the tenants of those manors, they becoming jointly and severally
answerable for the whole rent; but in return being allowed to collect it in their own way,
and to pay it into the king’s exchequer by the hands of their own bailiff, and being thus
altogether freed from the insolence of the king’s officers; a circumstance in those days
regarded as of the greatest importance.

At first, the farm of the town was probably let to the burghers, in the same manner
as it had been to other farmers, for a term of years only. In process of time, however,
it seems to have become the general practice to grant it to them in fee, that is for
ever, reserving a rent certain, never afterwards to be augmented. The payment having
thus become perpetual, the exemptions, in return, for which it was made, naturally
became perpetual too. Those exemptions, therefore, ceased to be personal, and could
not afterwards be considered as belonging to individuals, as individuals, but as burghers
of a particular burgh, which, upon this account, was called a free burgh, for the same
reason that they had been called free burghers or free traders.

Along with this grant, the important privileges, above mentioned, that they might
give away their own daughters in marriage, that their children should succeed to them,
and that they might dispose of their own effects by will, were generally bestowed

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upon the burghers of the town to whom it was given. Whether such privileges had
before been usually granted, along with the freedom of trade, to particular burghers,
as individuals, I know not. I reckon it not improbable that they were, though I cannot
produce any direct evidence of it. But however this may have been, the principal
attributes of villanage and slavery being thus taken away from them, they now at least
became really free, in our present sense of the word freedom.

Nor was this all. They were generally at the same time erected into a commonalty
or corporation, with the privilege of having magistrates and a town-council of their
own, of making bye-laws for their own government, of building walls for their own
defence, and of reducing all their inhabitants under a sort of military discipline, by
obliging them to watch and ward; that is, as anciently understood, to guard and defend
those walls against all attacks and surprises, by night as well as by day. In England
they were generally exempted from suit to the hundred and county courts: and all
such pleas as should arise among them, the pleas of the crown excepted, were left
to the decision of their own magistrates. In other countries, much greater and more
extensive jurisdictions were frequently granted to them. {See Madox, Firma Burgi. See
also Pfeffel in the Remarkable events under Frederick IH. and his Successors of the
House of Suabia.}

It might, probably, be necessary to grant to such towns as were admitted to farm
their own revenues, some sort of compulsive jurisdiction to oblige their own citizens
to make payment. In those disorderly times, it might have been extremely inconvenient
to have left them to seek this sort of justice from any other tribunal. But it must seem
extraordinary, that the sovereigns of all the different countries of Europe should have
exchanged in this manner for a rent certain, never more to be augmented, that branch
of their revenue, which was, perhaps, of all others, the most likely to be improved by
the natural course of things, without either expense or attention of their own; and that
they should, besides, have in this manner voluntarily erected a sort of independent
- republics in the heart of their own dominions.

In order to understand this, it must be remembered, that, in those days, the sovereign
of perhaps no country in Europe was able to protect, through the whole extent of his
dominions, the weaker part of his subjects from the oppression of the great lords.
Those whom the law could not protect, and who were not strong enough to defend
themselves, were obliged either to have recourse to the protection of some great lord,
and in order to obtain it, to become either his slaves or vassals; or to enter into a league
of mutual defence for the common protection of one another. The inhabitants of cities
and burghs, considered as single individuals, had no power to defend themselves; but
by entering into a league of mutual defence with their neighbours, they were capable
of making no contemptible resistance. The lords despised the burghers, whom they
considered not only as a different order, but as a parcel of emancipated slaves, almost
of a different species from themselves. The wealth of the burghers never failed to
provoke their envy and indignation, and they plundered them upon every occasion
without mercy or remorse. The burghers naturally hated and feared the lords. The king

THE WEALTH OF NATIONS

hated and feared them too; but though, perhaps, he might despise, he had no reason
either to hate or fear the burghers. Mutual interest, therefore, disposed them to support
the king, and the king to support them against the lords. They were the enemies of
his enemies, and it was his interest to render them as secure and independent of those
enemies as he could. By granting them magistrates of their own, the privilege of making
bye-laws for their own government, that of building walls for their own defence, and
that of reducing all their inhabitants under a sort of military discipline, he gave them
all the means of security and independency of the barons which it was in his power to
bestow. Without the establishment of some regular government of this kind, without
some authority to compel their inhabitants to act according to some certain plan or
system, no voluntary league of mutual defence could either have afforded them any
permanent security, or have enabled them to give the king any considerable support.
By granting them the farm of their own town in fee, he took away from those whom
he wished to have for his friends, and, if one may say so, for his allies, all ground of
jealousy and suspicion, that he was ever afterwards to oppress them, either by raising
the farm-rent of their town, or by granting it to some other farmer.

The princes who lived upon the worst terms with their barons, seem accordingly
to have been the most liberal in grants of this kind to their burghs. King John of
England, for example, appears to have been a most munificent benefactor to his towns.
{See Madox.} Philip I. of France lost all authority over his barons. Towards the end of
his reign, his son Lewis, known afterwards by the name of Lewis the Fat, consulted,
according to Father Daniel, with the bishops of the royal demesnes, concerning the
most proper means of restraining the violence of the great lords. Their advice consisted
of two different proposals. One was to erect a new order of jurisdiction, by establishing
magistrates and a town-council in every considerable town of his demesnes. The
other was to form a new militia, by making the inhabitants of those towns, under the
command of their own magistrates, march out upon proper occasions to the assistance
of the king, It is from this period, according to the French antiquarians, that we are to
date the institution of the magistrates and councils of cities in France. It was during the
unprosperous reigns of the princes of the house of Suabia, that the greater part of the
free towns of Germany received the first grants of their privileges, and that the famous
Hanseatic league first became formidable. {See Pfeffel.!

The militia of the cities seems, in those times, not to have been inferior to that of
the country; and as they could be more readily assembled upon any sudden occasion,
they frequently had the advantage in their disputes with the neighbouring lords. In
countries such as Italy or Switzerland, in which, on account either of their distance
from the principal seat of government, of the natural strength of the country itself,
or of some other reason, the sovereign came to lose the whole of his authority; the
cities generally became independent republics, and conquered all the nobility in their
neighbourhood; obliging them to pull down their castles in the country, and to live,
like other peaceable inhabitants, in the city. This is the short history of the republic
of Berne, as well as of several other cities in Switzerland. If you except Venice, for

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of that city the history is somewhat different, it is the history of all the considerable
Italian republics, of which so great a number arose and perished between the end of
the twelfth and the beginning of the sixteenth century.

In countries such as France and England, where the authority of the sovereign,
though frequently very low, never was destroyed altogether, the cities had no opportunity
of becoming entirely independent. They became, however, so considerable, that the
sovereign could impose no tax upon them, besides the stated farm-tent of the town,
without their own consent. They were, therefore, called upon to send deputies to the
general assembly of the states of the kingdom, where they might join with the clergy
and the barons in granting, upon urgent occasions, some extraordinary aid to the king,
Being generally, too, more favourable to his power, their deputies seem sometimes to
have been employed by him as a counterbalance in those assemblies to the authority of
the great lords. Hence the origin of the representation of burghs in the states-general
of all great monarchies in Europe.

Order and good government, and along with them the liberty and security of
individuals, were in this manner established in cities, at a time when the occupiers of
land in the country, were exposed to every sort of violence. But men in this defenceless
state naturally content themselves with their necessary subsistence; because, to
acquire more, might only tempt the injustice of their oppressors. On the contrary,
when they are secure of enjoying the fruits of their industry, they naturally exert it to
better their condition, and to acquire not only the necessaries, but the conveniencies
and elegancies of life. That industry, therefore, which aims at something more than
necessary subsistence, was established in cities long before it was commonly practised
by the occupiers of land in the country. If, in the hands of a poor cultivator, oppressed
with the servitude of villanage, some little stock should accumulate, he would naturally
conceal it with great care from his master, to whom it would otherwise have belonged,
and take the first opportunity of running away to a town. The law was at that time so
indulgent to the inhabitants of towns, and so desirous of diminishing the authority
of the lords over those of the country, that if he could conceal himself there from
the pursuit of his lord for a year, he was free for ever. Whatever stock, therefore,
accumulated in the hands of the industrious part of the inhabitants of the country,
naturally took refuge in cities, as the only sanctuaries in which it could be secure to the
person that acquired it.

The inhabitants of a city, it is true, must always ultimately derive their subsistence,
and the whole materials and means of their industry, from the country. But those
of a city, situated near either the sea-coast or the banks of a navigable river, are not
necessarily confined to derive them from the country in their neighbourhood. They
have a much wider range, and may draw them from the most remote corners of the
world, either in exchange for the manufactured produce of their own industry, or by
performing the office of carriers between distant countries, and exchanging the produce
of one for that of another. A city might, in this manner, grow up to great wealth and
splendour, while not only the country in its neighbourhood, but all those to which it

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traded, were in poverty and wretchedness. Each of those countries, perhaps, taken
singly, could afford it but a small part, either of its subsistence or of its employment;
but all of them taken together, could afford it both a great subsistence and a great
employment. There were, however, within the narrow circle of the commerce of those
times, some countries that were opulent and industrious. Such was the Greek empire as
long as it subsisted, and that of the Saracens during the reigns of the Abassides. Such,
too, was Egypt till it was conquered by the Turks, some part of the coast of Barbary,
and all those provinces of Spain which were under the government of the Moors. °

The cities of Italy seem to have been the first in Europe which were raised by
commerce to any considerable degree of opulence. Italy lay in the centre of what was
at that time the improved and civilized part of the world. The crusades, too, though,
by the great waste of stock and destruction of inhabitants which they occasioned,
they must necessarily have retarded the progress of the greater part of Europe, were
extremely favourable to that of some Italian cities. The great armies which marched
from all parts to the conquest of the Holy Land, gave extraordinary encouragement
to the shipping of Venice, Genoa, and Pisa, sometimes in transporting them thither,
and always in supplying them with provisions. They were the commissaries, if one may
say so, of those armies; and the most destructive frenzy that ever befel the European
nations, was a source of opulence to those republics.

The inhabitants of trading cities, by importing the improved manufactures and
expensive luxuries of richer countries, afforded some food to the vanity of the great
proprietors, who eagerly purchased them with great quantities of the rude produce of
their own lands. The commerce of a great part of Europe in those times, accordingly,
consisted chiefly in the exchange of their own rude, for the manufactured produce of
more civilized nations. Thus the wool of England used to be exchanged for the wines
of France, and the fine cloths of Flanders, in the same manner as the corn in Poland
is at this day, exchanged for the wines and brandies of France, and for the silks and
velvets of France and Italy.

A taste for the finer and more improved manufactures was, in this manner,
introduced by foreign commerce into countries where no such works were carried
on. But when this taste became so general as to occasion a considerable demand, the
merchants, in order to save the expense of carriage, naturally endeavoured to establish
some manufactures of the same kind in their own country. Hence the origin of the
first manufactures for distant sale, that seem to have been established in the western
provinces of Europe, after the fall of the Roman empire.

No large country, it must be observed, ever did or could subsist without some sort
of manufactures being carried on in it; and when it is said of any such country that it
has no manufactures, it must always be understood of the finer and more improved, or
of such as are fit for distant sale. In every large country both the clothing and household
furniture or the far greater part of the people, are the produce of their own industry.
This is even more universally the case in those poor countries which are commonly said
to have no manufactures, than in those rich ones that are said to abound in them. In the

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latter you will generally find, both in the clothes and household furniture of the lowest
tank of people, a much greater proportion of foreign productions than in the former.

Those manufactures which are fit for distant sale, seem to have been introduced
into different countries in two different ways.

Sometimes they have been introduced in the manner above mentioned, by the
violent operation, if one may say so, of the stocks of particular merchants and
undertakers, who established them in imitation of some foreign manufactures of the
same kind. Such manufactures, therefore, are the offspring of foreign commerce; and
such seem to have been the ancient manufactures of silks, velvets, and brocades, which
flourished in Lucca during the thirteenth century. They were banished from thence by
the tyranny of one of Machiavel’s heroes, Castruccio Castracani. In 1310, nine hundred
families were driven out of Lucca, of whom thirty-one retired to Venice, and offered
to introduce there the silk manufacture. {See Sandi Istoria civile de Vinezia, part 2 vol.
i, page 247 and 2506.} Their offer was accepted, many privileges were conferred upon
them, and they began the manufacture with three hundred workmen. Such, too, seem
to have been the manufactures of fine cloths that anciently flourished in Flanders, and
which were introduced into England in the beginning of the reign of Elizabeth, and such
are the present silk manufactures of Lyons and Spitalfields. Manufactures introduced in
this manner are generally employed upon foreign materials, being imitations of foreign
manufactures. When the Venetian manufacture was first established, the materials
were all brought from Sicily and the Levant. The more ancient manufacture of Lucca
was likewise carried on with foreign materials. The cultivation of mulberry trees, and
the breeding of silk-worms, seem not to have been common in the northern parts
of Italy before the sixteenth century. Those arts were not introduced into France till
the reign of Charles [X. The manufactures of Flanders were carried on chiefly with
Spanish and English wool. Spanish wool was the material, not of the first woollen
manufacture of England, but of the first that was fit for distant sale. More than one
- half the materials of the Lyons manufactute is at this day foreign silk; when it was first
established, the whole, or very nearly the whole, was so. No part of the materials of
the Spitalfields manufacture is ever likely to be the produce of England. The seat of
such manufactures, as they are generally introduced by the scheme and project of a
few individuals, is sometimes established in a maritime city, and sometimes in an inland
town, according as their interest, judgment, or caprice, happen to determine.

At other times, manufactures for distant sale grow up naturally, and as it were
of their own accord, by the gradual refinement of those household and coarser
manufactures which must at all times be carried on even in the poorest and rudest
countries. Such manufactures are generally employed upon the materials which the
country produces, and they seem frequently to have been first refined and improved in
such inland countries as were not, indeed, at a very great, but at a considerable distance
from the sea-coast, and sometimes even from all water carriage. An inland country,
naturally fertile and easily cultivated, produces a great surplus of provisions beyond
what is necessary for maintaining the cultivators; and on account of the expense of land

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carriage, and inconveniency of river navigation, it may frequently be difficult to send
this surplus abroad. Abundance, therefore, renders provisions cheap, and encourages a
great number of workmen to settle in the neighbourhood, who find that their industry
can there procure them more of the necessaries and conveniencies of life than in
other places. They work up the materials of manufacture which the land produces,
and exchange their finished work, or, what is the same thing, the price of it, for more
materials and provisions. They give a new value to the surplus part of the rude produce,
by saving the expense of carrying it to the water-side, or to some distant market; and
they furnish the cultivators with something in exchange for it that is either useful or
agreeable to them, upon easier terms than they could have obtained it before. The
cultivators get a better price for their surplus produce, and can purchase cheaper other
conveniencies which they have occasion for. They are thus both encouraged and enabled
to increase this surplus produce by a further improvement and better cultivation of the
land; and as the fertility of she land had given birth to the manufacture, so the progress
of the manufacture reacts upon the land, and increases still further it’s fertility. The
manufacturers first supply the neighbourhood, and afterwards, as their work improves
and refines, more distant markets. For though neither the rude produce, nor even the
coarse manufacture, could, without the greatest difficulty, support the expense of a
considerable land-carriage, the refined and improved manufacture easily may. In a small
bulk it frequently contains the price of a great quantity of rude produce. A piece of fine
cloth, for example which weighs only eighty pounds, contains in it the price, not only
of eighty pounds weight of wool, but sometimes of several thousand weight of corn,
the maintenance of the different working people, and of their immediate employers.
The corn which could with difficulty have been carried abroad in its own shape, is in
this manner virtually exported in that of the complete manufacture, and may easily
be sent to the remotest corners of the world. In this manner have grown up naturally,
and, as it were, of their own accord, the manufactures of Leeds, Halifax, Sheffield,
Birmingham, and Wolverhampton. Such manufactures are the offspring of agriculture.
In the modern history of Europe, their extension and improvement have generally
been posterior to those which were the offspring of foreign commerce. England was
noted for the manufacture of fine cloths made of Spanish wool, more than a century
before any of those which now flourish in the places above mentioned were fit for
foreign sale. The extension and improvement of these last could not take place but in
consequence of the extension and improvement of agriculture, the last and greatest
effect of foreign commerce, and of the manufactures immediately introduced by it,
and which I shall now proceed to explain.

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CHAPTER IV.

HOW THE COMMERCE OF
TOWNS CONTRIBUTED TO
THE IMPROVEMENT OF THE
COUNTRY.

he increase and riches of commercial and manufacturing towns contributed to the

improvement and cultivation of the countries to which they belonged, in three
different ways:

First, by affording a great and ready market for the rude produce of the country,
they gave encouragement to its cultivation and further improvement. This benefit was
not even confined to the countries in which they were situated, but extended more
or less to all those with which they had any dealings. To all of them they afforded a
market for some part either of their rude or manufactured produce, and, consequently,
gave some encouragement to the industry and improvement of all. Their own country,
however, on account of its neighbourhood, necessarily derived the greatest benefit
from this market. Its rude produce being charged with less carriage, the traders could
pay the growers a better price for it, and yet afford it as cheap to the consumers as that
of more distant countries.

Secondly, the wealth acquired by the inhabitants of cities was frequently employed
in purchasing such lands as were to be sold, of which a great part would frequently be
uncultivated. Merchants are commonly ambitious of becoming country gentlemen, and,
when they do, they are generally the best of all improvers. A merchant is accustomed
to employ his money chiefly in profitable projects; whereas a mere country gentleman
is accustomed to employ it chiefly in expense. The one often sees his money go from
him, and return to him again with a profit; the other, when once he parts with it, very
seldom expects to see any more of it. Those different habits naturally affect their
temper and disposition in every sort of business. The merchant is commonly a bold, a
country gentleman a timid undertaker. The one is not afraid to lay out at once a large
capital upon the improvement of his land, when he has a probable prospect of raising
the value of it in proportion to the expense; the other, if he has any capital, which is
not always the case, seldom ventures to employ it in this mannet. If he improves at all,
it is commonly not with a capital, but with what he can save out or his annual revenue.

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Whoever has had the fortune to live in a mercantile town, situated in an unimproved
country, must have frequently observed how much more spirited the operations of
merchants were in this way, than those of mete country gentlemen. The habits, besides,
of order, economy, and attention, to which mercantile business naturally forms a
merchant, render him much fitter to execute, with profit and success, any project of
improvement.

Thirdly, and lastly, commerce and manufactures gradually introduced order and
good government, and with them the liberty and security of individuals, among the
inhabitants of the country, who had before lived almost in a continual state of war with
their neighbours, and of servile dependency upon their superiors. This, though it has
been the least observed, is by far the most important of all their effects. Mr Hume is
the only writer who, so far as I know, has hitherto taken notice Orit:

Ina country which has neither foreign commerce nor any of the finer manufactures,
a great proprietor, having nothing for which he can exchange the greater part of the
ptoduce of his lands which is over and above the maintenance of the cultivators,
consumes the whole in rustic hospitality at home. If this surplus produce is sufficient
to maintain a hundred or a thousand men, he can make use of it in no other way than by
maintaining a hundred or a thousand men. He is at all times, therefore, surrounded with
a multitude of retainers and dependants, who, having no equivalent to give in return for
their maintenance, but being fed entirely by his bounty, must obey him, for the same
reason that soldiers must obey the prince who pays them. Before the extension of
commerce and manufactures in Europe, the hospitality of the rich and the great, from
the sovereign down to the smallest baron, exceeded every thing which, in the present
times, we can easily form a notion of Westminster-hall was the dining-room of William
Rufus, and might frequently, perhaps, not be too large for his company. It was reckoned
a piece of magnificence in Thomas Becket, that he strewed the floor of his hall with
clean hay or rushes in the season, in order that the knights and squires, who could not
get seats, might not spoil their fine clothes when they sat down on the floor to eat their
dinner. The great Rarl of Warwick is said to have entertained every day, at his different
manors, 30,000 people; and though the number here may have been exaggerated, it
must, however, have been very great to admit of such exaggeration. A hospitality nearly
of the same kind was exercised not many years ago in many different parts of the
Highlands of Scotland. It seems to be common in all nations to whom commerce and
manufactures are little known. I have seen, says Doctor Pocock, an Arabian chief dine
in the streets of a town where he had come to sell his cattle, and invite all passengers,
even common beggars, to sit down with him and partake of his banquet.

The occupiers of land were in every respect as dependent upon the great proprietor
as his retainers. Even such of them as were not in a state of villanage, were tenants at
will, who paid a rent in no respect equivalent to the subsistence which the land afforded
them. A crown, half a crown, a sheep, a lamb, was some years ago, in the Highlands
of Scotland, a common rent for lands which maintained a family. In some places it is
so at this day; nor will money at present purchase a greater quantity of commodities

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there than in other places. In a country where the surplus produce of a large estate
must be consumed upon the estate itself, it will frequently be more convenient for the
proprietor, that part of it be consumed at a distance from his own house, provided
they who consume it are as dependent upon him as either his retainers or his menial
servants. He is thereby saved from the embarrassment of either too large a company, or
too large a family. A tenant at will, who possesses land sufficient to maintain his family
for little more than a quit-rent, is as dependent upon the proprietor as any servant or
retainer whatever, and must obey him with as little reserve. Such a proprietor, as he
feeds his servants and retainers at his own house, so he feeds his tenants at their houses.
The subsistence of both is derived from his bounty, and its continuance depends upon
his good pleasure.

Upon the authority which the great proprietors necessarily had, in such a state
of things, over their tenants and retainers, was founded the power of the ancient
barons. They necessarily became the judges in peace, and the leaders in war, of all who
dwelt upon their estates. They could maintain order, and execute the law, within their
respective demesnes, because each of them could there turn the whole force of all the
inhabitants against the injustice of anyone. No other person had sufficient authority to
do this. The king, in particular, had not. In those ancient times, he was little more than
the greatest proprietor in his dominions, to whom, for the sake of common defence
against their common enemies, the other great proprietors paid certain respects. To
have enforced payment of a small debt within the lands of a great proprietor, where
all the inhabitants were armed, and accustomed to stand by one another, would have
cost the king, had he attempted it by his own authority, almost the same effort as
to extinguish a civil war. He was, therefore, obliged to abandon the administration
of justice, through the greater part of the country, to those who were capable of
administering it; and, for the same reason, to leave the command of the country militia
to those whom that militia would obey.

It is a mistake to imagine that those territorial jurisdictions took their origin from the
feudal law. Not only the highest jurisdictions, both civil and criminal, but the power of
levying troops, of coining money, and even that of making bye-laws for the government
of their own people, were all rights possessed allodially by the great proprietors of land,
several centuries before even the name of the feudal law was known in Europe. The
authority and jurisdiction of the Saxon lords in England appear to have been as great
before the Conquest as that of any of the Norman lords after it. But the feudal law
is not supposed to have become the common law of England till after the Conquest.
That the most extensive authority and jurisdictions were possessed by the great lords
in France allodially, long before the feudal law was introduced into that country, is
a matter of fact that admits of no doubt. That authority, and those jurisdictions, all
necessarily flowed from the state of property and manners just now described. Without
remounting to the remote antiquities of either the French or English monarchies, we
may find, in much later times, many proofs that such effects must always flow from
such causes. It is not thirty yeats ago since Mr Cameron of Lochiel, a gentleman of

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THE WEALTH OF NATIONS ~

Lochaber in Scotland, without any legal warrant whatever, not being what was then
called a lord of regality, nor even a tenant in chief, but a vassal of the Duke of Argyll,
and with out being so much as a justice of peace, used, notwithstanding, to exercise the
highest criminal jurisdictions over his own people. He is said to have done so with great
equity, though without any of the formalities of justice; and it is not improbable that
the state of that part of the country at that time made it necessary for him to assume
this authority, in order to maintain the public peace. That gentleman, whose rent never
exceeded £500 a-year, carried, in 1745, 800 of his own people into the rebellion with
him.

The introduction of the feudal law, so far from extending, may be regarded as
an attempt to moderate, the authority of the great allodial lords. It established a
regular subordination, accompanied with a long train of services and duties, from
the king down to the smallest proprietor. During the minority of the proprietor, the
rent, together with the management of his lands, fell into the hands of his immediate
superior; and, consequently, those of all great proprietors into the hands of the king,
who was charged with the maintenance and education of the pupil, and who, from his
authority as guardian, was supposed to have a right of disposing of him in marriage,
provided it was in a manner not unsuitable to his rank. But though this institution
necessarily tended to strengthen the authority of the king, and to weaken that of the
great proprietors, it could not do either sufficiently for establishing order and good
government among the inhabitants of the country; because it could not alter sufficiently
that state of property and manners from which the disorders arose. The authority of
government still continued to be, as before, too weak in the head, and too strong in the
inferior members; and the excessive strength of the inferior members was the cause of
the weakness of the head. After the institution of feudal subordination, the king was as
incapable of restraining the violence of the great lords as before. They still continued
to make war according to their own discretion, almost continually upon one another,
and very frequently upon the king; and the open country still continued to be a scene
of violence, rapine, and disorder.

But what all the violence of the feudal institutions could never have effected,
the silent and insensible operation of foreign commerce and manufactures gradually
brought about. These gradually furnished the great proprietors with something for
which they could exchange the whole surplus produce of their lands, and which they
could consume themselves, without sharing it either with tenants or retainers. All for
ourselves, and nothing for other people, seems, in every age of the world, to have
been the vile maxim of the masters of mankind. As soon, therefore, as they could
find a method of consuming the whole value of their rents themselves, they had no
disposition to share them with any other persons. For a pair of diamond buckles,
perhaps, or for something as frivolous and useless, they exchanged the maintenance,
ot, what is the same thing, the price of the maintenance of 1000 men for a year, and
with it the whole weight and authority which it could give them. The buckles, however,
were to be all their own, and no other human creature was to have any share of them;

296

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ADAM SMITH

whereas, in the more ancient method of expense, they must have shared with at least
1000 people. With the judges that were to determine the preference, this difference was
perfectly decisive; and thus, for the gratification of the most childish, the meanest, and
the most sordid of all vanities they gradually bartered their whole power and authority.

Ina country where there is no foreign commerce, nor any of the finer manufactures,
a man of £10,000 a-year cannot well employ his revenue in any other way than in
maintaining, perhaps, 1000 families, who are all of them necessarily at his command.
In the present state of Europe, a man of £10,000 a-year can spend his whole revenue,
and he generally does so, without directly maintaining twenty people, or being able to
command more than ten footmen, not worth the commanding. Indirectly, perhaps, he
maintains as great, or even a greater number of people, than he could have done by the
ancient method of expense. For though the quantity of precious productions for which
he exchanges his whole revenue be very small, the number of workmen employed
in collecting and preparing it must necessarily have been very great. Its great price
generally arises from the wages of their labour, and the profits of all their immediate
employers. By paying that price, he indirectly pays all those wages and profits, and thus
indirectly contributes to the maintenance of all the workmen and their employers. He
generally contributes, however, but a very small proportion to that of each; to a very
few, perhaps, not a tenth, to many not a hundredth, and to some not a thousandth, or
even a ten thousandth part of their whole annual maintenance. Though he contributes,
therefore, to the maintenance of them all, they are all more or less independent of him,
because generally they can all be maintained without him.

When the great proprietors of land spend their rents in maintaining their tenants
and retainers, each of them maintains entirely all his own tenants and all his own
retainers. But when they spend them in maintaining tradesmen and artificers, they may,
all of them taken together, perhaps maintain as great, or, on account of the waste
which attends rustic hospitality, a greater number of people than before. Each of them,
- however, taken singly, contributes often but a very small share to the maintenance of any
individual of this greater number. Each tradesman or artificer derives his subsistence
from the employment, not of one, but of a hundred or a thousand different customers.
Though in some measure obliged to them all, therefore, he is not absolutely dependent
upon any one of them.

The personal expense of the great proprietors having in this manner gradually
increased, it was impossible that the number of their retainers should not as gradually
diminish, till they were at last dismissed altogether. The same cause gradually led
them to dismiss the unnecessary part of their tenants. Farms were enlarged, and the
occupiers of land, notwithstanding the complaints of depopulation, reduced to the
number necessary for cultivating it, according to the imperfect state of cultivation
and improvement in those times. By the removal of the unnecessary mouths, and by
exacting from the farmer the full value of the farm, a greater surplus, or, what is the
same thing, the price of a greater surplus, was obtained for the proprietor, which the
merchants and manufacturers soon furnished him with a method of spending upon

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THE WEALTH OF NATIONS

his own person, in the same manner as he had done the rest. The cause continuing to
operate, he was desirous to taise his rents above what his lands, in the actual state of
their improvement, could afford. His tenants could agree to this upon one condition
only, that they should be secured in their possession for such a term of years as might
give them time to recover, with profit, whatever they should lay not in the further
improvement of the land. The expensive vanity of the landlord made him willing to
accept of this condition; and hence the origin of long leases.

Even a tenant at will, who pays the full value of the land, is not altogether dependent
upon the landlord. The pecuniary advantages which they receive from one another are
mutual and equal, and such a tenant will expose neither his life nor his fortune in the
service of the proprietor. But if he has a lease for along term of years, he is altogether
independent; and his landlord must not expect from him even the most trifling service,
beyond what is either expressly stipulated in the lease, or imposed upon him by the
common and known law of the country.

The tenants having in this manner become independent, and the retainers being
dismissed, the great proprietors were no longer capable of interrupting the regular
execution of justice, or of disturbing the peace of the country. Having sold their birth-
right, not like Esau, for a mess of pottage in time of hunger and necessity, but, in the
wantonness of plenty, for trinkets and baubles, fitter to be the playthings of children
than the serious pursuits of men, they became as insignificant as any substantial burgher
ot tradesmen in a city. A regular government was established in the country as well as in
the city, nobody having sufficient power to disturb its operations in the one, any more
than in the other.

It does not, perhaps, relate to the present subject, but I cannot help remarking it,
that very old families, such as have possessed some considerable estate from father
to son for many successive generations, are very rare in commercial countries. In
countries which have little commerce, on the contrary, such as Wales, or the Highlands
of Scotland, they are very common. The Arabian histories seem to be all full of
genealogies; and there is a history written by a Tartar Khan, which has been translated
into several European languages, and which contains scarce any thing else; a proof that
ancient families are very common among those nations. In countries where a rich man
can spend his revenue in no other way than by maintaining as many people as it can
maintain, he is apt to run out, and his benevolence, it seems, is seldom so violent as
to attempt to maintain more than he can afford. But where he can spend the greatest
revenue upon his own person, he frequently has no bounds to his expense, because
he frequently has no bounds to his vanity, or to his affection for his own person. In
commercial countries, therefore, riches, in spite of the most violent regulations of law
to prevent their dissipation, very seldom remain long in the same family. Among simple
nations, on the contrary, they frequently do, without any regulations of law; for among
nations of shepherds, such as the Tartars and Arabs, the consumable nature of theit
property necessarily renders all such regulations impossible.

A revolution of the greatest importance to the public happiness, was in this manner

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brought about by two different orders of people, who had not the least intention to
serve the public. To gratify the most childish vanity was the sole motive of the ereat
proprietors. The merchants.and artificers, much less ridiculous, acted merely from a
view to their own interest, and in pursuit of their own pedlar principle of turning
a penny wherever a penny was to be got. Neither of them had either knowledge or
foresight of that great revolution which the folly of the one, and the industry of the
other, was gradually bringing about.

It was thus, that, through the greater part of Europe, the commerce and
manufactures of cities, instead of being the effect, have been the cause and occasion
of the improvement and cultivation of the country.

This order, however, being contrary to the natural course of things, is necessarily
both slow and uncertain. Compare the slow progress of those European countries
of which the wealth depends very much upon their commerce and manufactures,
with the rapid advances of our North American colonies, of which the wealth is
founded altogether in agriculture. Through the greater part of Europe, the number
of inhabitants is not supposed to double in less than five hundred years. In several of
our North American colonies, it is found to double in twenty or five-and-twenty years.
In Europe, the law of primogeniture, and perpetuities of different kinds, prevent the
division of great estates, and thereby hinder the multiplication of small proprietors. A
small proprietor, however, who knows every part of his little territory, views it with all
the affection which property, especially small property, naturally inspires, and who upon
that account takes pleasure, not only in cultivating, but in adorning it, is generally of all
improvers the most industrious, the most intelligent, and the most successful. The same
regulations, besides, keep so much land out of the market, that there are always more
capitals to buy than there is land to sell, so that what is sold always sells at a monopoly
price. The rent never pays the interest of the purchase-money, and is, besides, burdened
with repairs and other occasional charges, to which the interest of money is not liable.
- To purchase land, is, everywhere in Europe, a most unprofitable employment of a small
capital. For the sake of the superior security, indeed, a man of moderate circumstances,
when he retires from business, will sometimes choose to lay out his little capital in land.
A man of profession, too whose revenue is derived from another source often loves
to secure his savings in the same way. But a young man, who, instead of applying to
trade or to some profession, should employ a capital of two or three thousand pounds
in the purchase and cultivation of a small piece of land, might indeed expect to live
very happily and very independently, but must bid adieu for ever to all hope of either
great fortune or great illustration, which, by a different employment of his stock, he
might have had the same chance of acquiring with other people. Such a person, too,
though he cannot aspire at being a proprietor, will often disdain to be a farmer. The
small quantity of land, therefore, which is brought to market, and the high price of
what is brought thither, prevents a great number of capitals from being employed in
its cultivation and improvement, which would otherwise have taken that direction. In
North America, on the contrary, fifty or sixty pounds is often found a sufficient stock

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to begin a plantation with. The purchase and improvement of uncultivated land is there
the most profitable employment of the smallest as well as of the greatest capitals, and
the most direct road to all the fortune and illustration which can be required in that
country. Such land, indeed, is in North America to be had almost for nothing, or at a
price much below the value of the natural produce; a thing impossible in Europe, or
indeed in any country where all lands have long been private property. If landed estates,
however, were divided equally among all the children, upon the death of any proprietor
who left a numerous family, the estate would generally be sold. So much land would
come to market, that it could no longer sell at a monopoly price. The free rent of the
land would go no nearer to pay the interest of the purchase-money, and a small capital
might be employed in purchasing land as profitable as in any other way.

England, on account of the natural fertility of the soil, of the great extent of
the sea-coast in proportion to that of the whole country, and of the many navigable
rivers which run through it, and afford the conveniency of water carriage to some of
the most inland parts of it, is perhaps as well fitted by nature as any large country in
Europe to be the seat of foreign commerce, of manufactures for distant sale, and of
all the improvements which these can occasion. From the beginning of the reign of
Elizabeth, too, the English legislature has been peculiarly attentive to the interest of
commerce and manufactures, and in reality there is no country in Europe, Holland
itself not excepted, of which the law is, upon the whole, more favourable to this sort
of industry. Commerce and manufactures have accordingly been continually advancing
during all this period. The cultivation and improvement of the country has, no doubt,
been gradually advancing too; but it seems to have followed slowly, and at a distance, the
more rapid progress of commerce and manufactures. The greater part of the country
must probably have been cultivated before the reign of Elizabeth; and a very great
part of it still remains uncultivated, and the cultivation of the far greater part much
inferior to what it might be, The law of England, however, favours agriculture, not
only indirectly, by the protection of cornmerce, but by several direct encouragements.
Except in times of scarcity, the exportation of corn is not only free, but encouraged by
a bounty. In times of moderate plenty, the importation of foreign corn is loaded with
duties that amount to a prohibition. The importation of live cattle, except from Ireland,
is prohibited at all times; and it is but of late that it was permitted from thence. Those
who cultivate the land, therefore, have a monopoly against their countrymen for the two
greatest and most important articles of land produce, bread and butcher’s meat. These
encouragements, although at bottom, perhaps, as I shall endeavour to show hereafter,
altogether illusory, sufficiently demonstrate at least the good intention of the legislature
to favour agriculture. But what is of much more importance than all of them, the
yeomanry of England are rendered as secure, as independent, and as respectable, as law
can make them. No country, therefore, which the right of primogeniture takes place,
which pays tithes, and where perpetuities, though contrary to the spirit of the law, are
admitted in some cases, can give more encouragement to agriculture than England.
Such, however, notwithstanding, is the state of its cultivation. What would it have been,

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had the law given no direct encouragement to agriculture besides what arises indirectly
from the progress of commerce, and had left the yeomanry in the same condition as
in most other countries of Europe? It is now more than two hundred years since the
beginning of the reign of Elizabeth, a petiod as long as the course of human prosperity
usually endures.

France seems to have had a considerable share of foreign commetce, near a century
before England was distinguished as a commercial country. The marine of France was
considerable, according to the notions of the times, before the expedition of Charles
VIII. to Naples. The cultivation and improvement of France, however, is, upon the
whole, inferior to that of England. The law of the country has never given the same
direct encouragement to agriculture.

The foreign commerce of Spain and Portual to the other parts of Europe, though
chiefly carried on in foreign ships, is very considerable. That to theit colonies is carried
on in their own, and is much greater, on account of the great riches and extent of those
colonies. But it has never introduced any considerable manufactures for distant sale
into either of those countries, and the greater part of both still remains uncultivated.
The foreign commerce of Portugal is of older standing than that of any great country
in Europe, except Italy.

Italy is the only great country of Europe which seems to have been cultivated
and improved in every part, by means of foreign commerce and manufactures for
distant sale. Before the invasion of Charles VUL, Italy, according to Guicciardini, was
cultivated not less in the most mountainous and barren parts of the country, than in
the plainest and most fertile. The advantageous situation of the country, and the great
number of independent status which at that time subsisted in it, probably contributed
not a little to this general cultivation. It is not impossible, too, notwithstanding this
general expression of one of the most judicious and reserved of modern historians,
that Italy was not at that time better cultivated than England is at present.

The capital, however, that is acquired to any country by commerce and manufactures,
is always a very precarious and uncertain possession, till some part of it has been
secured and realized in the cultivation and improvement of its lands. A merchant, it has
been said very properly, is not necessarily the citizen of any particular country. It is in
a great measure indifferent to him from what place he carries on his trade; and a very
trifling disgust will make him remove his capital, and, together with it, all the industry
which it supports, from one country to another. No part of it can be said to belong to
any particular country, till it has been spread, as it were, over the face of that country,
either in buildings, or in the lasting improvement of lands. No vestige now remains of
the great wealth said to have been possessed by the greater part of the Hanse Towns,
except in the obscure histories of the thirteenth and fourteenth centuries. It is even
uncertain where some of them were situated, or to what towns in Europe the Latin
names given to some of them belong, But though the misfortunes of Italy, in the
end of the fifteenth and beginning of the sixteenth centuries, greatly diminished the
commerce and manufactures of the cities of Lombardy and Tuscany, those countries

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still continue to be among the most populous and best cultivated in Europe. The civil
wars of Flanders, and the Spanish government which succeeded them, chased away the
great commerce of Antwerp, Ghent, and Bruges. But Flanders still continues to be one
of the richest, best cultivated, and most populous provinces of Europe. The ordinary
revolutions of war and government easily dry up the sources of that wealth which
arises from commerce only. That which arises from the more solid improvements of
agriculture is much more durable, and cannot be destroyed but by those more violent
convulsions occasioned by the depredations of hostile and barbarous nations continued
for a century or two together; such as those that happened for some time before and
after the fall of the Roman empire in the western provinces of Europe.

ADAM SMITH

BOOK IV.

OF SYSTEMS OF POLITICAL
ECONOMY.

ie economy, considered as a branch of the science of a statesman or legislator,
proposes two distinct objects; first, to provide a plentiful revenue or subsistence
for the people, or, more properly, to enable them to provide such a revenue or
subsistence for themselves; and, secondly, to supply the state or commonwealth with
a revenue sufficient for the public services. It proposes to enrich both the people and
the sovereign.

The different progress of opulence in different ages and nations, has given
occasion to two different systems of political economy, with regard to enriching the
people. The one may be called the system of commerce, the other that of agriculture.
I shall endeavour to explain both as fully and distinctly as I can, and shall begin with
the system of commerce. It is the modern system, and is best understood in our own
country and in our own times.

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CHAPTER I.

OF THE PRINCIPLE OF THE
COMMERCIAL OR MERCANTILE
SYSTEM.

hat wealth consists in money, or in gold and silver, is a popular notion which

naturally arises from the double function of money, as the instrument of
commerce, and as the measure of value. In consequence of its being the instrument
of commerce, when we have money we can mote readily obtain whatever else we have
occasion for, than by means of any other commodity. The great affair, we always find,
is to get money. When that is obtained, there is no difficulty in making any subsequent
purchase. In consequence of its being the measure of value, we estimate that of all
other commodities by the quantity of money which they will exchange for. We say of
a tich man, that he is worth a great deal, and of a poor man, that he is worth very little
money. A frugal man, or a man eager to be rich, is said to love money; and a careless,
a generous, or a profuse man, is said to be indifferent about it. To grow rich is to get
money; and wealth and money, in short, are, in common language, considered as in
every respect synonymous.

A rich country, in the same manner as a rich man, is supposed to be a country
abounding in money; and to heap up gold and silver in any country is supposed to be
the readiest way to enrich it. For some time after the discovery of America, the first
inquiry of the Spaniards, when they arrived upon any unknown coast, used to be, if
there was any gold or silver to be found in the neighbourhood? By the information
which they received, they judged whether it was worth while to make a settlement there,
or 1f the country was worth the conquering. Plano Carpino, a monk sent ambassador
from the king of France to one of the sons of the famous Gengis Khan, says, that
the Tartars used frequently to ask him, if there was plenty of sheep and oxen in the
kingdom of France? Their inquiry had the same object with that of the Spaniards. They
wanted to know if the country was rich enough to be worth the conquering, Among
the ‘Tartars, as among all other nations of shepherds, who are generally ignorant of
the use of money, cattle are the instruments of commerce and the measures of value.
Wealth, therefore, according to them, consisted in cattle, as, according to the Spaniards,
it consisted in gold and silver. Of the two, the Tartar notion, perhaps, was the nearest
to the truth.

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Mr Locke remarks a distinction between money and other moveable goods. All
other moveable goods, he says, are of so consumable a nature, that the wealth which
consists in them cannot be much depended on; and a nation which abounds in them
one year may, without any exportation, but metely by their own waste and extravagance,
be in great want of them the next. Money, on the contrary, is a steady friend, which,
though it may travel about from hand to hand, yet if it can be kept from going out of
the country, is not very liable to be wasted and consumed. Gold and silver, therefore,
are, according to him, the must solid and substantial part of the moveable wealth of a
nation; and to multiply those metals ought, he thinks, upon that account, to be the great
object of its political economy.

Others admit, that if a nation could be separated from all the world, it would be of
no consequence how much or how little money circulated in it. The consumable goods,
which were circulated by means of this money, would only be exchanged for a greater
or a smaller number of pieces; but the real wealth or poverty of the country, they
allow, would depend altogether upon the abundance or scarcity of those consumable
goods. But it is otherwise, they think, with countries which have connections with
foreign nations, and which are obliged to carry on foreign wars, and to maintain fleets
and armies in distant countries. This, they say, cannot be done, but by sending abroad
money to pay them with; and a nation cannot send much money abroad, unless it has
a good deal at home. Every such nation, therefore, must endeavour, in time of peace,
to accumulate gold and silver, that when occasion requires, it may have wherewithal to
catty on foreign wars.

In consequence of those popular notions, all the different nations of Europe have
studied, though to little purpose, every possible means of accumulating gold and silver
in their respective countries. Spain and Portugal, the proprietors of the principal mines
which supply Europe with those metals, have either prohibited their exportation under
the severest penalties, or subjected it to a considerable duty. The like prohibition seems

-anciently to have made a part of the policy of most other European nations. It is even
to be found, where we should least of all expect to find it, in some old Scotch acts of
Parliament, which forbid, under heavy penalties, the carrying gold or silver forth of the
kingdom. The like policy anciently took place both in France and England.

When those countries became commercial, the merchants found this prohibition,
upon many occasions, extremely inconvenient. They could frequently buy more
advantageously with gold and silver, than with any other commodity, the foreign goods
which they wanted, either to import into theit own, or to carry to some other foreign
country. They remonstrated, therefore, against this prohibition as hurtful to trade.

They represented, first, that the exportation of gold and silver, in order to purchase
foreign goods, did not always diminish the quantity of those metals in the kingdom; that,
on the contrary, it might frequently increase the quantity; because, if the consumption
of foreign goods was not thereby increased in the country, those goods might be re-
exported to foreign countries, and being there sold for a large profit, might bring back
much more treasure than was originally sent out to purchase them. Mr Mun compares

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this operation of foreign trade to the seed-time and harvest of agriculture. “If we only
behold,” says he, “the actions of the husbandman in the seed time, when he casteth
away much good corn into the ground, we shall account him rather a madman than a
husbandman. But when we consider his labours in the harvest, which is the end of his
endeavours, we shall find the worth and plentiful increase of his actions.”

They represented, secondly, that this prohibition could not hinder the exportation
of gold and silver, which, on account of the smallness of their bulk in proportion
to their value, could easily be smuggled abroad. That this exportation could only be
prevented by a proper attention to what they called the balance of trade. That when the
country exported to a greater value than it imported, a balance became due to it from
foreign nations, which was necessarily paid to it in gold and silver, and thereby increased
the quantity of those metals in the kingdom. But that when it imported to a greater
value than it exported, a contrary balance became due to foreign nations, which was
necessarily paid to them in the same manner, and thereby diminished that quantity: that
in this case, to prohibit the exportation of those metals, could not prevent it, but only,
by making it more dangerous, render it more expensive: that the exchange was thereby
turned more against the country which owed the balance, than it otherwise might have
been; the merchant who purchased a bill upon the foreign country being obliged to pay
the banker who sold it, not only for the natural risk, trouble, and expense of sending
the money thither, but for the extraordinary risk arising from the prohibition; but that
the more the exchange was against any country, the more the balance of trade became
necessarily against it; the money of that country becoming necessarily of so much less
value, in comparison with that of the country to which the balance was due. That if
the exchange between England and Holland, for example, was five per cent. against
England, it would require 105 ounces of silver in England to purchase a bill for 100
ounces of silver in Holland: that 105 ounces of silver in England, therefore, would be
worth only 100 ounces of silver in Holland, and would purchase only a proportionable
quantity of Dutch goods; but that 100 ounces of silver in Holland, on the contrary,
would be worth 105 ounces in England, and would purchase a proportionable quantity
of English goods; that the English goods which were sold to Holland would be sold
so much cheaper, and the Dutch goods which were sold to England so much dearer,
by the difference of the exchange: that the one would draw so much less Dutch money
to England, and the other so much more English money to Holland, as this difference
amounted to: and that the balance of trade, therefore, would necessarily be so much
more against England, and would require a greater balance of gold and silver to be
exported to Holland.

Those arguments were partly solid and partly sophistical. They were solid, so far
as they asserted that the exportation of gold and silver in trade might frequently be
advantageous to the country. They were solid, too, in asserting that no prohibition
could prevent their exportation, when private people found any advantage in exporting
them. But they were sophistical, in supposing, that either to preserve or to augment the
quantity of those metals required more the attention of government, than to preserve

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or to augment the quantity of any other useful commodities, which the freedom of
trade, without any such attention, never fails to supply in the proper quantity. They
were sophistical, too, perhaps, in asserting that the high price of exchange necessarily
increased what they called the unfavourable balance of trade, or occasioned the
exportation of a greater quantity of gold and silver. That high price, indeed, was
extremely disadvantageous to the merchants who had any money to pay in foreign
countries. They paid so much dearer for the bills which their bankers granted them
upon those countries. But though the risk arising from the prohibition might occasion
some extraordinary expense to the bankers, it would not necessarily carry any more
money out of the country. This expense would generally be all laid out in the country,
in smuggling the money out of it, and could seldom occasion the exportation of a
single sixpence beyond the precise sum drawn for. The high price of exchange, too,
would naturally dispose the merchants to endeavour to make their exports nearly
balance their imports, in order that they might have this high exchange to pay upon
as small a sum as possible. The high price of exchange, besides, must necessarily have
operated as a tax, in raising the price of foreign goods, and thereby diminishing their
consumption. It would tend, therefore, not to increase, but to diminish, what they
called the unfavourable balance of trade, and consequently the exportation of gold
and silver.

Such as they were, however, those arguments convinced the people to whom they
were addressed. They were addressed by merchants to parliaments and to the councils
of princes, to nobles, and to country gentlemen; by those who were supposed to
understand trade, to those who were conscious to them selves that they knew nothing
about the matter. That foreign trade enriched the country, experience demonstrated
to the nobles and country gentlemen, as well as to the merchants; but how, or in what
manner, none of them well knew. The merchants knew perfectly in what manner it
enriched themselves, it was their business to know it. But to know in what manner

-it enriched the country, was no part of their business. The subject never came into
their consideration, but when they had occasion to apply to their country for some
change in the laws relating to foreign trade. It then became necessary to say something
about the beneficial effects of foreign trade, and the manner in which those effects
were obstructed by the laws as they then stood. To the judges who were to decide the

~ business, it appeared a most satisfactory account of the matter, when they were told that
foreign trade brought money into the country, but that the laws in question hindered it
from bringing so much as it otherwise would do. Those arguments, therefore, produced
the wished-for effect. The prohibition of exporting gold and silver was, in France
and England, confined to the coin of those respective countries. The exportation of
foreign coin and of bullion was made free. In Holland, and in some other places, this
liberty was extended even to the coin of the country. The attention of government
was turned away from guarding against the exportation of gold and silver, to watch
over the balance of trade, as the only cause which could occasion any augmentation
or diminution of those metals. From one fruitless care, it was turned away to another

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care much more intricate, much more embarrassing, and just equally fruitless. The title
of Mun’s book, England’s Treasure in Foreign Trade, became a fundamental maxim in
the political economy, not of England only, but of all other commercial countries. The
inland or home trade, the most important of all, the trade in which an equal capital
affords the greatest revenue, and creates the greatest employment to the people of the
country, was considered as subsidiary only to foreign trade. It neither brought money
into the country, it was said, nor carried any out of it. The country, therefore, could
never become either richer or poorer by means of it, except so far as its prosperity or
decay might indirectly influence the state of foreign trade.

A country that has no mines of its own, must undoubtedly draw its gold and
silver from foreign countries, in the same manner as one that has no vineyards of its
own must draw its wines. It does not seem necessary, however, that the attention of
government should be more turned towards the one than towards the other object. A
country that has wherewithal to buy wine, will always get the wine which it has occasion
for; and a country that has wherewithal to buy gold and silver, will never be in want of
those metals. They are to be bought for a certain price, like all other commodities; and
as they are the price of all other commodities, so all other commodities are the price
of those metals. We trust, with perfect security, that the freedom of trade, without any
attention of government, will always supply us with the wine which we have occasion
for; and we may trust, with equal security, that it will always supply us with all the
gold and silver which we can afford to purchase or to employ, either in circulating our
commodities or in other uses.

The quantity of every commodity which human industry can either purchase or
produce, naturally regulates itself in every country according to the effectual demand,
or according to the demand of those who are willing to pay the whole rent, labour,
and profits, which must be paid in order to prepare and bring it to market. But no
commodities regulate themselves more easily or more exactly, according to this effectual
demand, than gold and silver; because, on account of the small bulk and great value
of those metals, no commodities can be more easily transported from one place to
another; from the places where they are cheap, to those where they are dear; from the
places where they exceed, to those where they fall short of this effectual demand. If
there were in England, for example, an effectual demand for an additional quantity of
gold, a packet-boat could bring from Lisbon, or from wherever else it was to be had,
fifty tons of gold, which could be coined into more than five millions of guineas. But if
there were an effectual demand for grain to the same value, to import it would require,
at five guineas a-ton, a million of tons of shipping, or a thousand ships of a thousand
tons each. The navy of England would not be sufficient.

When the quantity of gold and silver imported into any country exceeds the
effectual demand, no vigilance of government can prevent their exportation. All the
sanguinary laws of Spain and Portugal are not able to keep their gold and silver at home.
The continual importations from Peru and Brazil exceed the effectual demand of those
countries, and sink the price of those metals there below that in the neighbouring

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countries. If, on the contrary, in any particular country, their quantity fell short of the
effectual demand, so as to raise their price above that of the neighbouring countries,
the government would have no occasion to take any pains to import them. If it were
even to take pains to prevent their importation, it would not be able to effectuate it.
Those metals, when the Spartans had got wherewithal to purchase them, broke through
all the barriers which the laws of Lycurgus opposed to their entrance into Lacedaemon.
All the sanguinary laws of the customs are not able to prevent the importation of the
teas of the Dutch and Gottenburg East India companies; because somewhat cheaper
than those of the British company. A pound of tea, however, is about a hundred times
the bulk of one of the highest prices, sixteen shillings, that is commonly paid for it
in silver, and more than two thousand times the bulk of the same price in gold, and,
consequently, just so many times more difficult to smugele.

It is partly owing to the easy transportation of gold and silver, from the places
where they abound to those where they are wanted, that the price of those metals does
not fluctuate continually, like that of the greater part of other commodities, which
are hindered by their bulk from shifting their situation, when the market happens to
be either over or under-stocked with them. The price of those metals, indeed, is not
altogether exempted from variation; but the changes to which it is liable are generally
slow, gradual, and uniform. In Europe, for example, it is supposed, without much
foundation, perhaps, that during the course of the present and preceding century, they
have been constantly, but gradually, sinking in their value, on account of the continual
importations from the Spanish West Indies. But to make any sudden change in the
price of gold and silver, so as to raise or lower at once, sensibly and remarkably, the
money price of all other commodities, requires such a revolution in commerce as that
occasioned by the discovery of America.

If, not withstanding all this, gold and silver should at any time fall short in a country
which has wherewithal to purchase them, there are more expedients for supplying their
. place, than that of almost any other commodity. If the materials of manufacture are
wanted, industry must stop. If provisions are wanted, the people must starve. But if
money is wanted, barter will supply its place, though with a good deal of inconveniency.
Buying and selling upon credit, and the different dealers compensating their credits
with one another, once a-month, or once a-year, will supply it with less inconveniency.
A well-regulated paper-money will supply it not only without any inconveniency, but,
in some cases, with some advantages. Upon every account, therefore, the attention of
government never was so unnecessarily employed, as when directed to watch over the
preservation or increase of the quantity of money in any country.

No complaint, however, is more common than that of a scarcity of money. Money,
like wine, must always be scarce with those who have neither wherewithal to buy it, nor
credit to borrow it. Those who have either, will seldom be in want either of the money,
or of the wine which they have occasion for. This complaint, however, of the scarcity
of money, is not always confined to improvident spendthrifts. It is sometimes general
through a whole mercantile town and the country in its neighbourhood. Over-trading is

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the common cause of it. Sober men, whose projects have been disproportioned to their
capitals, are as likely to have neither wherewithal to buy money, nor credit to borrow
it, as prodigals, whose expense has been disproportioned to their revenue. Before their
projects can be brought to bear, their stock is gone, and their credit with it. They run
about everywhere to borrow money, and everybody tells them that they have none to
lend. Even such general complaints of the scarcity of money do not always prove that
the usual number of gold and silver pieces are not circulating in the country, but that
many people want those pieces who have nothing to give for them. When the profits
of trade happen to be greater than ordinary over-trading becomes a general error,
both among great and small dealers. They do not always send more money abroad
than usual, but they buy upon credit, both at home and abroad, an unusual quantity of
goods, which they send to some distant market, in hopes that the returns will come in
before the demand for payment. The demand comes before the returns, and they have
nothing at hand with which they can either purchase money or give solid security for
borrowing. It is not any scarcity of gold and silver, but the difficulty which such people
find in borrowing, and which their creditor find in getting payment, that occasions the
general complaint of the scarcity of money.

It would be too ridiculous to go about seriously to prove, that wealth does not
consist in money, or in gold and silver; but in what money purchases, and is valuable
only for purchasing, Money, no doubt, makes always a part of the national capital; but
it has already been shown that it generally makes but a small part, and always the most
unprofitable part of it.

It is not because wealth consists more essentially in money than in goods, that the
merchant finds it generally more easy to buy goods with money, than to buy money
with goods; but because money ts the known and established instrument of commertce,
for which every thing 1s readily given in exchange, but which is not always with equal
readiness to be got in exchange for every thing. The greater part of goods, besides,
are more perishable than money, and he may frequently sustain a much greater loss by
keeping them. When his goods are upon hand, too, he is more liable to such demands
for money as he may not be able to answer, than when he has got their price in his
coffers. Over and above all this, his profit arises more directly from selling than from
buying; and he is, upon all these accounts, generally much more anxious to exchange
his goods for money than his money for goods. But though a particular merchant, with
abundance of goods in his warehouse, may sometimes be ruined by not being able
to sell them in time, a nation or country is not liable to the same accident, The whole
capital of a merchant frequently consists in perishable goods destined for purchasing
money. But it is but a very small part of the annual produce of the land and labour
of a country, which can ever be destined for purchasing gold and silver from their
neighbours. The far greater part is circulated and consumed among themselves; and
even of the surplus which is sent abroad, the greater part is generally destined for
the purchase of other foreign goods. Though gold and silver, therefore, could not
be had in exchange for the goods destined to purchase them, the nation would not

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be ruined. It might, indeed, suffer some loss and inconveniency, and be forced upon
some of those expedients which are necessary for supplying the place of money. The
annual produce of its land and labour, however, would be the same, or very nearly the
same as usual; because the same, or very nearly the same consumable capital would be
employed in maintaining it. And though goods do not always draw money so readily as
money draws goods, in the long-run they draw it more necessarily than even it draws
them. Goods can setve many other purposes besides purchasing money, but money
can serve no other purpose besides purchasing goods. Money, therefore, necessarily
runs after goods, but goods do not always or necessarily run after money. The man who
buys, does not always mean to sell again, but frequently to use or to consume; whereas
he who sells always means to buy again. The one may frequently have done the whole,
but the other can never have done more than the one half of his business. It is not for
its own sake that men desire money, but for the sake of what they can purchase with it.
Consumable commodities, it is said, are soon destroyed; whereas gold and silver

are of a more durable nature, and were it not for this continual exportation, might
be accumulated for ages together, to the incredible augmentation of the real wealth
of the country. Nothing, therefore, it is pretended, can be more disadvantageous to
any country, than the trade which consists in the exchange of such lasting for such
perishable commodities. We do not, however, reckon that trade disadvantageous, which
consists in the exchange of the hardware of England for the wines of France, and yet
hardware is a very durable commodity, and were it not for this continual exportation,
might too be accumulated for ages together, to the incredible augmentation of the pots
and pans of the country. But it readily occurs, that the number of such utensils is in
evety country necessarily limited by the use which there is for them; that it would be
absurd to have more pots and pans than were necessary for cooking the victuals usually
consumed there; and that, if the quantity of victuals were to increase, the number of
pots and pans would readily increase along with it; a part of the increased quantity of
- victuals being employed in purchasing them, or in maintaining an additional number
of workmen whose business it was to make them. It should as readily occur, that the
quantity of gold and silver is, in every country, limited by the use which there is for
those metals; that their use consists in circulating commodities, as coin, and in affording
a species of household furniture, as plate; that the quantity of coin in every country
is regulated by the value of the commodities which are to be circulated by it; increase
that value, and immediately a part of it will be sent abroad to purchase, wherever it
is to be had, the additional quantity of coin requisite for circulating them: that the
quantity of plate is regulated by the number and wealth of those private families who
choose to indulge themselves in that sort of magnificence; increase the number and
wealth of such families, and a part of this increased wealth will most probably be
employed in purchasing, wherever it is to be found, an additional quantity of plate; that
to attempt to increase the wealth of any country, either by introducing or by detaining
in it an unnecessaty quantity of gold and silver, is as absurd as it would be to attempt
to increase the good cheer of private families, by obliging them to keep an unnecessary

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THE WEALTH OF NATIONS

number of kitchen utensils. As the expense of purchasing those unnecessary utensils
would diminish, instead of increasing, either the quantity or goodness of the family
provisions; so the expense of purchasing an unnecessary quantity of gold and silver
must, in every country, as necessarily diminish the wealth which feeds, clothes, and
lodges, which maintains and employs the people. Gold and silver, whether in the shape
of coin or of plate, are utensils, it must be remembered, as much as the furniture of the
kitchen. Increase the use of them, increase the consumable commodities which are to
be circulated, managed, and prepared by means of them, and you will infallibly increase
the quantity; but if you attempt by extraordinary means to increase the quantity, you
will as infallibly diminish the use, and even the quantity too, which in those metals can
never be greater than what the use requires. Were they ever to be accumulated beyond
this quantity, their transportation is so easy, and the loss which attends their lying idle
and unemployed so great, that no law could prevent their being immediately sent out
of the country.

It is not always necessary to accumulate gold and silver, in order to enable a country
to carry on foreign wars, and to maintain fleets and armies in distant countries. Fleets
and armies are maintained, not with gold and silver, but with consumable goods. The
nation which, from the annual produce of its domestic industry, from the annual
revenue arising out of its lands, and labour, and consumable stock, has wherewithal to
purchase those consumable goods in distant countries, can maintain foreign wars there.

A nation may purchase the pay and provisions of an army in a distant country three
different ways; by sending abroad either, first, some part of its accumulated gold and
silver; or, secondly, some part of the annual produce of its manufactures; or, last of all,
some part of its annual rude produce.

The gold and silver which can properly be considered as accumulated, or stored
up in any country, may be distinguished into three parts; first, the circulating money;
secondly, the plate of private families; and, last of all, the money which may have been
collected by many years parsimony, and laid up in the treasury of the prince.

It can seldom happen that much can be spared from the circulating money of
the country; because in that there can seldom be much redundancy. The value of
goods annually bought and sold in any country requires a certain quantity of money to
circulate and distribute them to their proper consumers, and can give employment to
no more. The channel of circulation necessarily draws to itself a sum sufficient to fill
it, and never admits any more. Something, however, is generally withdrawn from this
channel in the case of foreign wat. By the great number of people who are maintained
abroad, fewer are maintained at home. Fewer goods are circulated there, and less money
becomes necessary to circulate them. An extraordinary quantity of paper money of
some sort or other, too, such as exchequer notes, navy bills, and bank bills, in England,
is generally issued upon such occasions, and, by supplying the place of circulating
gold and silver, gives an opportunity of sending a greater quantity of it abroad. All
this, however, could afford but a poor resource for maintaining a foreign war, of great
expense, and several years duration.

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The melting down of the plate of private families has, upon every occasion, been
found a still more insignificant one. The French, in the beginning of the last war, did
not derive so much advantage from this expedient as to compensate the loss of the
fashion.

The accumulated treasures of the prince have in former times afforded a much
greater and more lasting resource. In the present times, if you except the king of
Prussia, to accumulate treasure seems to be no part of the policy of European princes.

The funds which maintained the foreign wars of the present century, the most
expensive perhaps which history records, seem to have had little dependency upon the
exportation either of the circulating money, or of the plate of private families, or of the
treasure of the prince. The last French war cost Great Britain upwards of £90,000,000,
including not only the £75,000,000 of new debt that was contracted, but the additional
2s. in the pound land-tax, and what was annually borrowed of the sinking fund. More
than two-thirds of this expense were laid out in distant countries; in Germany, Portugal,
America, in the ports of the Mediterranean, in the East and West Indies. The kings of
England had no accumulated treasure. We never heard of any extraordinary quantity of
plate being melted down. The circulating gold and silver of the country had not been
supposed to exceed £18,000,000. Since the late recoinage of the gold, however, it is
believed to have been a good deal under-rated. Let us suppose, therefore, according to
the most exaggerated computation which I remember to have either seen or heard of,
that, gold and silver together, it amounted to £30,000,000. Had the war been carried
on by means of our money, the whole of it must, even according to this computation,
have been sent out and returned again, at least twice in a period of between six and
seven years. Should this be supposed, it would afford the most decisive argument, to
demonstrate how unnecessary it is for government to watch over the preservation of
money, since, upon this supposition, the whole money of the country must have gone
from it, and returned to it again, two different times in so short a period, without any
_ body’s knowing any thing of the matter. The channel of circulation, however, never
appeared more empty than usual during any part of this period. Few people wanted
money who had wherewithal to pay for it. The profits of foreign trade, indeed, were
greater than usual during the whole war, but especially towards the end of it. This
occasioned, what it always occasions, a general over-trading in all the ports of Great
Britain; and this again occasioned the usual complaint of the scarcity of money, which
always follows over-trading. Many people wanted it, who had neither wherewithal to
buy it, nor credit to borrow it; and because the debtors found it difficult to borrow, the
creditors found it difficult to get payment. Gold and silver, however, were generally to
be had for their value, by those who had that value to give for them.

The enormous expense of the late war, therefore, must have been chiefly defrayed,
not by the exportation of gold and silver, but by that of British commodities of some
kind or other. When the government, or those who acted under them, contracted with
a merchant for a remittance to some foreign country, he would naturally endeavour to
pay his foreign correspondent, upon whom he granted a bill, by sending abroad rather

eye)

THE WEALTH OF NATIONS ~—

commodities than gold and silver. If the commodities of Great Britain were not in
demand in that country, he would endeavour to send them to some other country in
which he could purchase a bill upon that country. The transportation of commodities,
when properly suited to the market, is always attended with a considerable profit;
whereas that of gold and silver is scarce ever attended with any. When those metals
are sent abroad in order to purchase foreign commodities, the merchant's profit arises,
not from the purchase, but from the sale of the returns. But when they are sent abroad
metely to pay a debt, he gets no returns, and consequently no profit. He naturally,
therefore, exerts his invention to find out a way of paying his foreign debts, rather by
the exportation of commodities, than by that of gold and silver. The great quantity of
British goods, exported during the course of the late war, without bringing back any
returns, is accordingly remarked by the author of the Present State of the Nation.

Besides the three sorts of gold and silver above mentioned, there is in all great
commercial countries a good deal of bullion alternately imported and exported, for
the purposes of foreign trade. This bullion, as it circulates among different commercial
countries, in the same manner as the national coin circulates in every country, may be
considered as the money of the great mercantile republic. The national coin receives its
movement and direction from the commodities circulated within the precincts of each
particular country; the money in the mercantile republic, from those circulated between
different countries. Both are employed in facilitating exchanges, the one between
different individuals of the same, the other between those of different nations. Part
of this money of the great mercantile republic may have been, and probably was,
employed in carrying on the late war. In time of a general war, it is natural to suppose
that a movement and direction should be impressed upon it, different from what it
usually follows in profound peace, that it should circulate more about the seat of the
war, and be more employed in purchasing there, and in the neighbouring countries, the
pay and provisions of the different armies. But whatever part of this money of the
mercantile republic Great Britain may have annually employed in this manner, it must
have been annually purchased, either with British commodities, or with something else
that had been purchased with them; which still brings us back to commodities, to
the annual produce of the land and labour of the country, as the ultimate resources
which enabled us to carry on the war. It is natural, indeed, to suppose, that so great an
annual expense must have been defrayed from a great annual produce. The expense of
1761, for example, amounted to more than £19,000,000. No accumulation could have
supported so great an annual profusion. There is no annual produce, even of gold and
silver, which could have supported it. The whole gold and silver annually imported into
both Spain and Portugal, according to the best accounts, does not commonly much
exceed £6,000,000 sterling, which, in some years, would scarce have paid four months
expense of the late war.

The commodities most proper for being transported to distant countries, in order
to purchase there either the pay and provisions of an army, or some part of the money
of the mercantile republic to be employed in purchasing them, seem to be the finer

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and more improved manufactures; such as contain a great value in a small bulk, and can
therefore be exported to a great distance at little expense. A country whose industry
produces a great annual surplus of such manufactures, which are usually exported to
foreign countries, may carry on for many yeats a very expensive foreign war, without
either exporting any considerable quantity of gold and silver, or even having any such
quantity to export. A considerable part of the annual surplus of its manufactures must,
indeed, in this case, be exported without bringing back any returns to the country,
though it does to the merchant; the government purchasing of the merchant his bills
upon foreign countries, in order to purchase there the pay and provisions of an army.
Some part of this surplus, however, may still continue to bring back a return. The
manufacturers during; the war will have a double demand upon them, and be called
upon first to work up goods to be sent abroad, for paying the bills drawn upon foreign
countries for the pay and provisions of the army: and, secondly, to work up such as are
necessary for purchasing the common returns that had usually been consumed in the
country. In the midst of the most destructive foreign war, therefore, the greater part of
manufactures may frequently flourish greatly; and, on the contrary, they may decline on
the return of peace. They may flourish amidst the ruin of their country, and begin to
decay upon the return of its prosperity. The different state of many different branches
of the British manufactures during the late war, and for some time after the peace, may
serve as an illustration of what has been just now said.

No foreign war, of great expense or duration, could conveniently be carried on
by the exportation of the rude produce of the soil. The expense of sending such a
quantity of it into a foreign country as might purchase the pay and provisions of an
army would be too great. Few countries, too, produce much more rude produce than
what is sufficient for the subsistence of their own inhabitants. To send abroad any great
quantity of it, therefore, would be to send abroad a part of the necessary subsistence
of the people. It is otherwise with the exportation of manufactures. The maintenance
_ of the people employed in them is kept at home, and only the surplus part of their
work is exported. Mr Hume frequently takes notice of the inability of the ancient kings
of England to carry on, without interruption, any foreign war of long duration. The
English in those days had nothing wherewithal to purchase the pay and provisions of
their armies in foreign countries, but either the rude produce of the soil, of which no
considerable part could be spared from the home consumption, or a few manufactures
of the coarsest kind, of which, as well as of the rude produce, the transportation was
too expensive. This inability did not arise from the want of money, but of the finer and
more improved manufactures. Buying and selling was transacted by means of money
in England then as well as now. The quantity of circulating money must have borne the
same proportion, to the number and value of purchases and sales usually transacted
at that time, which it does to those transacted at present; or, rather, it must have borne
a greater proportion, because there was then no paper, which now occupies a great
part of the employment of gold and silver. Among nations to whom commerce and
manufactures are little known, the sovereign, upon extraordinary occasions, can seldom

THE WEALTH OF NATIONS

draw any considerable aid from his subjects, for reasons which shall be explained
hereafter, It is in such countries, therefore, that he generally endeavours to accumulate
a treasure, as the only resource against such emergencies. Independent of this necessity,
he is, in such a situation, naturally disposed to the parsimony requisite for accumulation.
In that simple state, the expense even of a sovereign is not directed by the vanity which
delights in the gaudy finery of a court, but is employed in bounty to his tenants, and
hospitality to his retainers. But bounty and hospitality very seldom lead to extravagance;
though vanity almost always does. Every Tartar chief, accordingly, has a treasure. The
treasures of Mazepa, chief of the Cossacks in the Ukraine, the famous ally of Charles
XIL., ate said to have been very great. The French kings of the Merovingian race had
all treasures. When they divided their kingdom among their different children, they
divided their treasures too. The Saxon princes, and the first kings after the Conquest,
seem likewise to have accumulated treasures. The first exploit of every new reign was
commonly to seize the treasure of the preceding king, as the most essential measure for
securing the succession. The sovereigns of improved and commercial countries are not
under the same necessity of accumulating treasures, because they can generally draw
from their subjects extraordinary aids upon extraordinary occasions. They are likewise
less disposed to do so. They naturally, perhaps necessarily, follow the mode of the
times; and their expense comes to be regulated by the same extravagant vanity which
directs that of all the other great proprietors in their dominions. The insignificant
pageantry of their court becomes every day more brilliant; and the expense of it not
only prevents accumulation, but frequently encroaches upon the funds destined for
more necessary expenses. What Dercyllidas said of the court of Persia, may be applied
to that of several European princes, that he saw there much splendour, but little
strength, and many servants, but few soldiers.

The importation of gold and silver is not the principal, much less the sole benefit,
which a nation derives from its foreign trade. Between whatever places foreign trade
is carried on, they all of them derive two distinct benefits from it. It carries out that
surplus part of the produce of their land and labour for which there is no demand
among them, and brings back in return for it something else for which there is a
demand. It gives a value to their superfluities, by exchanging them for something else,
which may satisfy a part of their wants and increase their enjoyments. By means of
it, the narrowness of the home market does not hinder the division of labour in any
particular branch of art or manufacture from being carried to the highest perfection.
By opening a more extensive market for whatever part of the produce of their labour
may exceed the home consumption, it encourages them to improve its productive
power, and to augment its annual produce to the utmost, and thereby to increase the
real revenue and wealth of the society. These great and important services foreign trade
is continually occupied in performing to all the different countries between which it
is carried on. They all derive great benefit from it, though that in which the merchant
resides generally derives the greatest, as he is generally more employed in supplying
the wants, and carrying out the superfluities of his own, than of any other particular

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country. To import the gold and silver which may be wanted into the countries which
have no mines, is, no doubt a part of the business of foreign commerce. It is, however,
a most insignificant part of it. A country which carried on foreign trade merely upon
this account, could scarce have occasion to freight a ship in a century.

It is not by the importation of gold and silver that the discovery of America has
enriched Europe. By the abundance of the American mines, those metals have become
cheaper. A service of plate can now be purchased for about a third part of the corn,
or a third part of the labour, which it would have cost in the fifteenth century. With
the same annual expense of labour and commodities, Europe can annually purchase
about three times the quantity of plate which it could have purchased at that time. But
when a commodity comes to be sold for a third part of what bad been its usual price,
not only those who purchased it before can purchase three times their former quantity,
but it is brought down to the level of a much greater number of purchasers, perhaps
to more than ten, perhaps to more than twenty times the former number. So that there
may be in Europe at present, not only more than three times, but more than twenty
or thirty times the quantity of plate which would have been in it, even in its present
state of improvement, had the discovery of the American mines never been made. So
far Europe has, no doubt, gained a real conveniency, though surely a very trifling one.
The cheapness of gold and silver renders those metals rather less fit for the purposes
of money than they were before. In order to make the same purchases, we must load
ourselves with a greater quantity of them, and carry about a shilling in our pocket,
where a groat would have done before. It is difficult to say which is most trifling, this
inconveniency, or the opposite conveniency. Neither the one nor the other could have
made any very essential change in the state of Europe. The discovery of America,
however, certainly made a most essential one. By opening a new and inexhaustible
market to all the commodities of Europe, it gave occasion to new divisions of labour
and improvements of art, which in the narrow circle of the ancient commerce could
-never have taken place, for want of a market to take off the greater part of their produce.
The productive powers of labour were improved, and its produce increased in all the
different countries of Europe, and together with it the real revenue and wealth of the
inhabitants. The commodities of Europe were almost all new to America, and many
of those of America were new to Europe. A new set of exchanges, therefore, began to
take place, which had never been thought of before, and which should naturally have
proved as advantageous to the new, as it certainly did to the old continent. The savage
injustice of the Europeans rendered an event, which ought to have been beneficial to
all, ruinous and destructive to several of those unfortunate countries.

The discovery of a passage to the East Indies by the Cape of Good Hope, which
happened much about the same time, opened perhaps a still more extensive range to
foreign commerce, than even that of America, notwithstanding the greater distance.
There were but two nations in America, in any respect, superior to the savages, and
these were destroyed almost as soon as discovered. The rest were mere savages. But
the empires of China, Indostan, Japan, as well as several others in the East Indies,

Suey)

THE WEALTH OF NATIONS

without having richer mines of gold or silver, were, in every other respect, much richer,
better cultivated, and more advanced in all arts and manufactures, than either Mexico
ot Peru, even though we should credit, what plainly deserves no credit, the exaggerated
accounts of the Spanish writers concerning the ancient state of those empires. But rich
and civilized nations can always exchange to a much greater value with one another,
than with savages and barbarians. Europe, however, has hitherto derived much less
advantage from its commerce with the East Indies, than from that with America. The
Portuguese monopolized the East India trade to themselves for about a century, and
it was only indirectly, and through them, that the other nations of Europe could either
send out of receive any goods from that country. When the Dutch, in the beginning
of the last century, began to encroach upon them, they vested their whole East India
commetce in an exclusive company. The English, French, Swedes, and Danes, have
all followed their example; so that no great nation of Europe has ever yet had the
benefit of a free commerce to the East Indies. No other reason need be assigned why
it has never been so advantageous as the trade to America, which, between almost
every nation of Europe and its own colonies, is free to all its subjects. The exclusive
privileges of those East India companies, their great riches, the great favour and
protection which these have procured them from their respective governments, have
excited much envy against them. This envy has frequently represented their trade as
altogether pernicious, on account of the great quantities of silver which it every year
exports from the countries from which it is carried on. The parties concerned have
replied, that their trade by this continual exportation of silver, might indeed tend to
impoverish Europe in general, but not the particular country from which it was carried
on; because, by the exportation of a part of the returns to other European countries, it
annually brought home a much greater quantity of that metal than it carried out. Both
the objection and the reply are founded in the popular notion which I have been just
now examining, It is therefore unnecessary to say any thing further about either. By
the annual exportation of silver to the East Indies, plate is probably somewhat dearer
in Europe than it otherwise might have been; and coined silver probably purchases a
larger quantity both of labour and commodities. The former of these two effects is
a very small loss, the latter a very small advantage; both too insignificant to deserve
any part of the public attention. The trade to the East Indies, by opening a market to
the commodities of Europe, or, what comes nearly to the same thing, to the gold and
silver which is purchased with those commodities, must necessarily tend to increase the
annual production of European commodities, and consequently the real wealth and
revenue of Europe. That it has hitherto increased them so little, is probably owing to
the restraints which it everywhere labours under.

I thought it necessary, though at the hazard of being tedious, to examine at full
length this popular notion, that wealth consists in money or in gold and silver. Money,
in common language, as I have already observed, frequently signifies wealth; and this
ambiguity of expression has rendered this popular notion so familiar to us, that even
they who are convinced of its absurdity, are very apt to forget their own principles,

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ADAM SMITH

and, in the course of their reasonings, to take it for granted as a certain and undeniable
truth. Some of the best English writers upon commerce set out with observing, that the
wealth of a country consists, not in its gold and silver only, but in its lands, houses, and
consumable goods of all different kinds. In the course of their reasonings, however,
the lands, houses, and consumable goods, seem to slip out of their memory; and the
strain of their argument frequently supposes that all wealth consists in gold and silver,
and that to multiply those metals is the great object of national industry and commerce.

The two principles being established, however, that wealth consisted in gold and
silver, and that those metals could be brought into a country which had no mines,
only by the balance of trade, or by exporting to a greater value than it imported; it
necessarily became the great object of political economy to diminish as much as
possible the importation of foreign goods for home consumption, and to increase as
much as possible the exportation of the produce of domestic industry. Its two great
engines for enriching the country, therefore, were restraints upon importation, and
encouragement to exportation.

The restraints upon importation were of two kinds.

First, restraints upon the importation of such foreign goods for home consumption
as could be produced at home, from whatever country they were imported.

Secondly, restraints upon the importation of goods of almost all kinds, from those
particular countries with which the balance of trade was supposed to be disadvantageous.

Those different restraints consisted sometimes in high duties, and sometimes in
absolute prohibitions.

Exportation was encouraged sometimes by drawbacks, sometimes by bounties,
sometimes by advantageous treaties of commerce with foreign states, and sometimes
by the establishment of colonies in distant countries.

Drawbacks were given upon two different occasions. When the home manufactures
were subject to any duty or excise, either the whole or a part of it was frequently drawn
back upon their exportation; and when foreign goods liable to a duty were imported, in
order to be exported again, either the whole or a part of this duty was sometimes given
back upon such exportation.

Bounties were given for the encouragement, either of some beginning manufactures,
ot of such sorts of industry of other kinds as were supposed to deserve particular
favour.

By advantageous treaties of commerce, particular privileges were procured in some
foreign state for the goods and merchants of the country, beyond what were granted
to those of other countries.

By the establishment of colonies in distant countries, not only particular privileges,
but a monopoly was frequently procured for the goods and merchants of the country
which established them.

The two sorts of restraints upon importation above mentioned, together with
these four encouragements to exportation, constitute the six principal means by which
the commercial system proposes to increase the quantity of gold and silver in any

b19

_ THE WEALTH OF NATIONS ©

country, by turning the balance of trade in its favour. I shall consider each of them ina
particular chapter, and, without taking much farther notice of their supposed tendency
to bring money into the country, I shall examine chiefly what are likely to be the effects
of each of them upon the annual produce of its industry. According as they tend either
to increase or diminish the value of this annual produce, they must evidently tend
either to increase or diminish the real wealth and revenue of the country.

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ADAM SMITH

_ CHAPTER II.

OF RESTRAINTS UPON
IMPORTATION FROM FOREIGN
COUNTRIES OF SUCH GOODS
AS CAN BE PRODUCED AT
HOME.

y restraining, either by high duties, or by absolute prohibitions, the importation

of such goods from foreign countries as can be produced at home, the monopoly
of the home market is more or less secured to the domestic industry employed in
producing them. Thus the prohibition of importing either live cattle or salt provisions
from foreign countries, secures to the graziers of Great Britain the monopoly of the
home market for butchet’s meat. The high duties upon the importation of corn, which,
in times of moderate plenty, amount to a prohibition, give a like advantage to the
growers of that commodity. The prohibition of the importation of foreign woollen
is equally favourable to the woollen manufacturers. The silk manufacture, though
altogether employed upon foreign materials, has lately obtained the same advantage.
The linen manufacture has not yet obtained it, but is making great strides towards it.
Many other sorts of manufactures have, in the same manner obtained in Great Britain,
either altogether, or very nearly, a monopoly against their countrymen. The variety of
goods, of which the importation into Great Britain is prohibited, either absolutely, or
under certain circumstances, greatly exceeds what can easily be suspected by those who
are not well acquainted with the laws of the customs.

That this monopoly of the home market frequently gives great encouragement to
that particular species of industry which enjoys it, and frequently turns towards that
employment a greater share of both the labour and stock of the society than would
otherwise have gone to it, cannot be doubted. But whether it tends either to increase
the general industry of the society, or to give it the most advantageous direction, is not,
perhaps, altogether so evident.

The general industry of the society can never exceed what the capital of the
society can employ. As the number of workmen that can be kept in employment by
any particular person must bear a certain proportion to his capital, so the number of

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those that can be continually employed by all the members of a great society must
beat a certain proportion to the whole capital of the society, and never can exceed
that proportion. No regulation of commerce can increase the quantity of industry in
any society beyond what its capital can maintain. It can only divert a part of it into a
direction into which it might not otherwise have gone; and it is by no means certain that
this artificial direction is likely to be more advantageous to the society, than that into
which it would have gone of its own accord.

Every individual is continually exerting himself to find out the most advantageous
employment for whatever capital he can command. It is his own advantage, indeed,
and not that of the society, which he has in view. But the study of his own advantage
naturally, or rather necessarily, leads him to prefer that employment which is most
advantageous to the society.

First, every individual endeavours to employ his capital as near home as he can, and
consequently as much as he can in the support of domestic industry, provided always
that he can thereby obtain the ordinary, or not a great deal less than the ordinary profits
of stock.

Thus, upon equal, or nearly equal profits, every wholesale merchant naturally
prefers the home trade to the foreign trade of consumption, and the foreign trade
of consumption to the carrying trade. In the home trade, his capital is never so long
out of his sight as it frequently is in the foreign trade of consumption. He can know
better the character and situation of the persons whom he trusts; and if he should
happen to be deceived, he knows better the laws of the country from which he must
seek redress. In the carrying trade, the capital of the merchant is, as it were, divided
between two foreign countries, and no part of it is ever necessarily brought home, or
placed under his own immediate view and command. The capital which an Amsterdam
merchant employs in carrying corn from Koningsberg to Lisbon, and fruit and wine
from Lisbon to Koningsberg, must generally be the one half of it at Koningsberg, and
the other half at Lisbon. No part of it need ever come to Amsterdam. The natural
residence of such a merchant should either be at Koningsberg or Lisbon; and it can
only be some very particular circumstances which can make him prefer the residence
of Amsterdam. The uneasiness, however, which he feels at being separated so far from
his capital, generally determines him to bring part both of the Koningsberg goods
which he destines for the market of Lisbon, and of the Lisbon goods which he destines
for that of Koningsberg, to Amsterdam; and though this necessarily subjects him to
a double charge of loading and unloading as well as to the payment of some duties
and customs, yet, for the sake of having some part of his capital always under his own
view and command, he willingly submits to this extraordinary charge; and it is in this
manner that every country which has any considerable share of the carrying trade,
becomes always the emporium, or general market, for the goods of all the different
countries whose trade it carries on. The merchant, in order to save a second loading
and unloading, endeavours always to sell in the home market, as much of the goods of
all those different countries as he can; and thus, so far as he can, to convert his carrying

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trade into a foreign trade of consumption. A merchant, in the same manner, who
is engaged in the foreign trade of consumption, when he collects goods for foreign
markets, will always be glad, upon equal or nearly equal profits, to sell as great a part
of them at home as he can. He saves himself the risk and trouble of exportation,
when, so far as he can, he thus converts his foreign trade of consumption into a home
trade. Home is in this manner the centre, if I may say so, round which the capitals of
the inhabitants of every country are continually circulating, and towards which they
are always tending, though, by particular causes, they may sometimes be driven off
and repelled from it towards more distant employments. But a capital employed in the
home trade, it has already been shown, necessarily puts into motion a greater quantity
of domestic industry, and gives revenue and employment to a greater number of the
inhabitants of the country, than an equal capital employed in the foreign trade of
consumption; and one employed in the foreign trade of consumption has the same
advantage over an equal capital employed in the carrying trade. Upon equal, or only
nearly equal profits, therefore, every individual naturally inclines to employ his capital in
the manner in which it is likely to afford the greatest support to domestic industry, and
to give revenue and employment to the greatest number of people of his own country.

Secondly, every individual who employs his capital in the support of domestic
industry, necessarily endeavours so to direct that industry, that its produce may be of
the greatest possible value.

The produce of industry 1s what it adds to the subject or materials upon which it is
employed. In proportion as the value of this produce is great or small, so will likewise
be the profits of the employer. But it 1s only for the sake of profit that any man employs
a capital in the support of industry; and he will always, therefore, endeavour to employ
it in the support of that industry of which the produce is likely to be of the greatest
value, or to exchange for the greatest quantity either of money or of other goods.

But the annual revenue of every society is always precisely equal to the exchangeable
value of the whole annual produce of its industry, or rather is precisely the same thing
with that exchangeable value. As every individual, therefore, endeavours as much as he
can, both to employ his capital in the support of domestic industry, and so to direct
that industry that its produce maybe of the greatest value; every individual necessarily
labours to render the annual revenue of the society as great as he can. He generally,
indeed, neither intends to promote the public interest, nor knows how much he is
promoting it. By preferring the support of domestic to that of foreign industry, he
intends only his own security; and by directing that industry in such a manner as its
produce may be of the greatest value, he intends only his own gain; and he is in this,
as in many other cases, led by an invisible hand to promote an end which was no part
of his intention. Nor is it always the worse for the society that it was no part of it. By
pursuing his own interest, he frequently promotes that of the society more effectually
than when he really intends to promote it. I have never known much good done by
those who affected to trade for the public good. It is an affectation, indeed, not very
common among merchants, and very few words need be employed in dissuading them

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from it.

What is the species of domestic industry which his capital can employ, and of which
the produce is likely to be of the greatest value, every individual, it is evident, can in his
local situation judge much better than any statesman or lawgiver can do for him. The
statesman, who should attempt to direct private people in what manner they ought to
employ their capitals, would not only load himself with a most unnecessary attention,
but assume an authority which could safely be trusted, not only to no single person,
but to no council or senate whatever, and which would nowhere be so dangerous as
in the hands of a man who had folly and presumption enough to fancy himself fit to
éxercisesit:

To give the monopoly of the home market to the produce of domestic industry,
in any particular art or manufacture, is in some measure to direct private people in
what manner they ought to employ their capitals, and must in almost all cases be either
a useless or a hurtful regulation. If the produce of domestic can be brought there as
cheap as that of foreign industry, the regulation is evidently useless. If it cannot, it
must generally be hurtful. It is the maxim of every prudent master of a family, never
to attempt to make at home what it will cost him more to make than to buy. The
tailor does not attempt to make his own shoes, but buys them of the shoemaker. The
shoemaker does not attempt to make his own clothes, but employs a tailor. The farmer
attempts to make neither the one nor the other, but employs those different artificers.
All of them find it for their interest to employ their whole industry in a way in which
they have some advantage over their neighbours, and to purchase with a part of its
produce, or, what is the same thing, with the price of a part of it, whatever else they
have occasion for.

What is prudence in the conduct of every private family, can scarce be folly in that of
a great kingdom. If a foreign country can supply us with a commodity cheaper than we
ourselves can make it, better buy it of them with some part of the produce of our own
industry, employed in a way in which we have some advantage. The general industry of
the country being always in proportion to the capital which employs it, will not thereby
be diminished, no more than that of the abovementioned artificers; but only left to find
out the way in which it can be employed with the greatest advantage. It is certainly not
employed to the greatest advantage, when it is thus directed towards an object which
it can buy cheaper than it can make. The value of its annual produce is certainly more
or less diminished, when it is thus turned away from producing commodities evidently
of more value than the commodity which it is directed to produce. According to the
supposition, that commodity could be purchased from foreign countries cheaper than
it can be made at home; it could therefore have been purchased with a part only of
the commodities, or, what is the same thing, with a part only of the price of the
commodities, which the industry employed by an equal capital would have produced
at home, had it been left to follow its natural course. The industry of the country,
therefore, is thus turned away from a more to a less advantageous employment; and
the exchangeable value of its annual produce, instead of being increased, according to

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the intention of the lawgiver, must necessarily be diminished by every such regulation.

By means of such regulations, indeed, a particular manufacture may sometimes
be acquired sooner than it could have been otherwise, and after a certain time may
be made at home as cheap, or cheaper, than in the foreign country. But though the
industry of the society may be thus carried with advantage into a particular channel
sooner than it could have been otherwise, it will by no means follow that the sum-total,
either of its industry, or of its revenue, can ever be augmented by any such regulation.
The industry of the society can augment only in proportion as its capital augments,
and its capital can augment only in proportion to what can be gradually saved out of its
revenue. But the immediate effect of every such regulation is to diminish its revenue;
and what diminishes its revenue is certainly not very likely to augment its capital faster
than it would have augmented of its own accord, had both capital and industry been
left to find out their natural employments.

Though, for want of such regulations, the society should never acquire the
proposed manufacture, it would not upon that account necessarily be the poorer in
anyone period of its duration. In every period of its duration its whole capital and
industry might still have been employed, though upon different objects, in the manner
that was most advantageous at the time. In every period its revenue might have been
the greatest which its capital could afford, and both capital and revenue might have
been augmented with the greatest possible rapidity.

The natural advantages which one country has over another, in producing particular
commodities, are sometimes so great, that it is acknowledged by all the world to be in
vain to struggle with them. By means of glasses, hot-beds, and hot-walls, very good
grapes can be raised in Scotland, and very good wine, too, can be made of them, at
about thirty times the expense for which at least equally good can be brought from
foreign countries. Would it be a reasonable law to prohibit the importation of all
foreign wines, merely to encourage the making of claret and Burgundy in Scotland?
But if there would be a manifest absurdity in turning towards any employment thirty
times more of the capital and industry of the country than would be necessary to
purchase from foreign countries an equal quantity of the commodities wanted, there
must be an absurdity, though not altogether so glaring, yet exactly of the same kind, in
turning towards any such employment a thirtieth, or even a three hundredth part more
of either. Whether the advantages which one country has over another be natural or
acquired, is in this respect of no consequence. As long as the one country has those
advantages, and the other wants them, it will always be more advantageous for the latter
rather to buy of the former than to make. It is an acquired advantage only, which one
artificer has over his neighbour, who exercises another trade; and yet they both find it
more advantageous to buy of one another, than to make what does not belong to their
particular trades.

Merchants and manufacturers are the people who derive the greatest advantage
from this monopoly of the home market. The prohibition of the importation of foreign
cattle and of salt provisions, together with the high duties upon foreign corn, which

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in times of moderate plenty amount to a prohibition, are not near so advantageous to
the graziers and farmers of Great Britain, as other regulations of the same kind are to
its merchants and manufacturers. Manufactures, those of the finer kind especially, are
mote easily transported from one country to another than corn or cattle. It is in the
fetching and carrying manufactures, accordingly, that foreign trade is chiefly employed.
In manufactures, a very small advantage will enable foreigners to undersell our own
workmen, even in the home market. It will require a very great one to enable them to
do so in the rude produce of the soil. If the free importation of foreign manufactures
were permitted, several of the home manufactures would probably suffer, and some of
them perhaps go to ruin altogether, and a considerable part of the stock and industry
at present employed in them, would be forced to find out some other employment. But
the freest importation of the rude produce of the soil could have no such effect upon
the agriculture of the country.

If the importation of foreign cattle, for example, were made ever so free, so few
could be imported, that the grazing trade of Great Britain could be little affected by
it. Live cattle are, perhaps, the only commodity of which the transportation is more
expensive by sea than by land. By land they carry themselves to market. By sea, not only
the cattle, but their food and their water too, must be carried at no small expense and
inconveniency. The short sea between Ireland and Great Britain, indeed, renders the
importation of Irish cattle more easy. But though the free importation of them, which
was lately permitted only for a limited time, were rendered perpetual, it could have
no considerable effect upon the interest of the graziers of Great Britain. Those parts
of Great Britain which border upon the Irish sea are all grazing countries. Irish cattle
could never be imported for their use, but must be drove through those very extensive
countries, at no small expense and inconveniency, before they could arrive at their
proper market. Fat cattle could not be drove so far. Lean cattle, therefore, could only
be imported; and such importation could interfere not with the interest of the feeding
or fattening countties, to which, by reducing the price of lean cattle it would rather be
advantageous, but with that of the breeding countries only. The small number of Irish
cattle imported since their importation was permitted, together with the good price
at which lean cattle still continue to sell, seem to demonstrate, that even the breeding
countries of Great Britain are never likely to be much affected by the free importation
of Irish cattle. The common people of Ireland, indeed, are said to have sometimes
opposed with violence the exportation of their cattle. But if the exporters had found
any great advantage in continuing the trade, they could easily, when the law was on their
side, have conquered this mobbish opposition.

Feeding and fattening countries, besides, must always be highly improved, whereas
breeding countries are generally uncultivated. The high price of lean cattle, by
augmenting the value of uncultivated land, is like a bounty against improvement. To
any country which was highly improved throughout, it would be more advantageous to
import its lean cattle than to breed them. The province of Holland, accordingly, is said to
follow this maxim at present. The mountains of Scotland, Wales, and Northumberland,

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indeed, are countries not capable of much improvement, and seem destined by nature
to be the breeding countries of Great Britain. The freest importation of foreign
cattle could have no other effect than to hinder those breeding countries from taking
advantage of the increasing population and improvement of the rest of the kingdom,
from raising their price to an exorbitant height, and from laying a real tax upon all the
more improved and cultivated parts of the country.

The freest importation of salt provisions, in the same manner, could have as little
effect upon the interest of the graziers of Great Britain as that of live cattle. Salt
provisions are not only a very bulky commodity, but when compared with fresh meat
they are a commodity both of worse quality, and, as they cost more labour and expense,
of higher price. They could never, therefore, come into competition with the fresh
meat, though they might with the salt provisions of the country. They might be used
for victualling ships for distant voyages, and such like uses, but could never make any
considerable part of the food of the people. The small quantity of salt provisions
imported from Ireland since their importation was rendered free, is an experimental
proof that our graziers have nothing to apprehend from it. It does not appear that the
price of butcher’s meat has ever been sensibly affected by it.

Even the free importation of foreign corn could very little affect the interest of the
farmers of Great Britain. Corn is a much more bulky commodity than butcher’s meat.
A pound of wheat at a penny is as dear as a pound of butcher’s meat at fourpence.
The small quantity of foreign corn imported even in times of the greatest scarcity, may
satisfy our farmers that they can have nothing to fear from the freest importation. The
average quantity imported, one year with another, amounts only, according to the very
well informed author of the Tracts upon the Corn Trade, to 23,728 quarters of all sorts
of grain, and does not exceed the five hundredth and seventy-one part of the annual
consumption. But as the bounty upon corn occasions a greater exportation in years of
plenty, so it must, of consequence, occasion a greater importation in years of scarcity,
than in the actual state of tillage would otherwise take place. By means of it, the plenty
of one year does not compensate the scarcity of another; and as the average quantity
exported is necessarily augmented by it, so must likewise, in the actual state of tillage,
the average quantity imported. If there were no bounty, as less corn would be exported,
suit is probable that, one year with another, less would be imported than at present. The
corn-merchants, the fetchers and carriers of corn between Great Britain and foreign
countries, would have much less employment, and might suffer considerably; but the
country gentlemen and farmers could suffer very little. It is in the corn-merchants,
accordingly, rather than the country gentlemen and farmers, that I have observed the
greatest anxiety for the renewal and continuation of the bounty.

Country gentlemen and farmers are, to their great honour, of all people, the least
subject to the wretched spirit of monopoly. The undertaker of a great manufactory ts
sometimes alarmed if another work of the same kind is established within twenty miles
of him; the Dutch undertaker of the woollen manufacture at Abbeville, stipulated
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THE WEALTH OF NATIONS

city. Farmers and country gentlemen, on the contrary, are generally disposed rather to
promote, than to obstruct, the cultivation and improvement of their neighbours farms
and estates. They have no secrets, such as those of the greater part of manufacturers,
but are generally rather fond of communicating to their neighbours, and of extending
as far as possible any new practice which they may have found to be advantageous.
“Pius quaestus”, says old Cato, “stabilissimusque, minimeque invidiosus; minimeque
male cogitantes sunt, qui in eo studio occupati sunt.” Country gentlemen and farmers,
dispersed in different parts of the country, cannot so easily combine as merchants
and manufacturers, who being collected into towns, and accustomed to that exclusive
corporation spirit which prevails in them, naturally endeavour to obtain, against all
their countrymen, the same exclusive privilege which they generally possess against
the inhabitants of their respective towns. They accordingly seem to have been the
otiginal inventors of those restraints upon the importation of foreign goods, which
secure to them the monopoly of the home market. It was probably in imitation of
them, and to put themselves upon a level with those who, they found, were disposed to
oppress them, that the country gentlemen and farmers of Great Britain so far forgot
the generosity which is natural to their station, as to demand the exclusive privilege
of supplying their countrymen with corn and butcher’s meat. They did not, perhaps,
take time to consider how much less their interest could be affected by the freedom of
trade, than that of the people whose example they followed.

To prohibit, by a perpetual law, the importation of foreign corn and cattle, is in
reality to enact, that the population and industry of the country shall, at no time, exceed
what the rude produce of its own soil can maintain.

There seem, however, to be two cases, in which it will generally be advantageous to
lay some burden upon foreign, for the encouragement of domestic industry.

The first is, when some particular sort of industry is necessary for the defence
of the country. The defence of Great Britain, for example, depends very much upon
the number of its sailors and shipping. The act of navigation, therefore, very properly
endeavours to give the sailors and shipping of Great Britain the monopoly of the
trade of their own country, in some cases, by absolute prohibitions, and in others, by
heavy burdens upon the shipping of foreign countries. The following are the principal
dispositions of this act.

First, All ships, of which the owners, masters, and three-fourths of the mariners,
are not British subjects, are prohibited, upon pain of forfeiting ship and cargo, from
trading to the British settlements and plantations, or from being employed in the
coasting trade of Great Britain.

Secondly, A great variety of the most bulky articles of importation can be brought
into Great Britain only, either in such ships as are above described, or in ships of the
country where those goods are produced, and of which the owners, masters, and three-
fourths of the mariners, are of that particular country; and when imported even in
ships of this latter kind, they are subject to double aliens duty. If imported in ships of
any other country, the penalty is forfeiture of ship and goods. When this act was made,

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the Dutch were, what they still are, the great carriers of Europe; and by this regulation
they were entirely excluded from being the carriers to Great Britain, or from importing
to us the goods of any other European country.

Thirdly, A great variety of the most bulky articles of importation are prohibited
from being imported, even in British ships, from any country but that in which they are
produced, under pain of forfeiting ship and cargo. This regulation, too, was probably
intended against the Dutch. Holland was then, as now, the great emporium for all
European goods; and by this regulation, British ships were hindered from loading in
Holland the goods of any other European country.

Fourthly, Salt fish of all kinds, whale fins, whalebone, oil, and blubber, not caught
by and cured on board British vessels, when imported into Great Britain, are subject to
double aliens duty. The Dutch, as they are still the principal, were then the only fishers
in Europe that attempted to supply foreign nations with fish. By this regulation, a very
heavy burden was laid upon their supplying Great Britain.

When the act of navigation was made, though England and Holland were not
actually at war, the most violent animosity subsisted between the two nations. It had
begun during the government of the long parliament, which first framed this act, and
it broke out soon after in the Dutch wars, during that of the Protector and of Charles
II. It is not impossible, therefore, that some of the regulations of this famous act may
have proceeded from national animosity. They are as wise, however, as if they had all
been dictated by the most deliberate wisdom. National animosity, at that particular
time, aimed at the very same object which the most deliberate wisdom would have
recommended, the diminution of the naval power of Holland, the only naval power
which could endanger the security of England.

The act of navigation is not favourable to foreign commerce, or to the growth of
that opulence which can arise from it. The interest of a nation, in its commercial relations
to foreign nations, is, like that of a merchant with regard to the different people with
whom he deals, to buy as cheap, and to sell as dear as possible. But it will be most likely
to buy cheap, when, by the most perfect freedom of trade, it encourages all nations to
bring to it the goods which it has occasion to purchase; and, for the same reason, it will
be most likely to sell dear, when its markets are thus filled with the greatest number of
buyers. The act of navigation, it is true, lays no burden upon foreign ships that come to
export the produce of British industry. Even the ancient aliens duty, which used to be
paid upon all goods, exported as well as imported, has, by several subsequent acts, been
taken off from the greater part of the articles of exportation. But if foreigners, either
by prohibitions or high duties, are hindered from coming to sell, they cannot always
afford to come to buy; because, coming without a cargo, they must lose the freight from
their own country to Great Britain. By diminishing the number of sellers, therefore, we
necessarily diminish that of buyers, and are thus likely not only to buy foreign goods
dearer, but to sell our own cheaper, than if there was a more perfect freedom of trade.
As defence, however, is of much more importance than opulence, the act of navigation
is, perhaps, the wisest of all the commercial regulations of England.

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THE WEALTH OF NATIONS ©

The second case, in which it will generally be advantageous to lay some burden
upon foreign for the encouragement of domestic industry, is when some tax is
imposed at home upon the produce of the latter. In this case, it seems reasonable
that an equal tax should be imposed upon the like produce of the former. This would
not give the monopoly of the borne market to domestic industry, nor turn towards a
particular employment a greater share of the stock and labour of the country, than
what would naturally go to it. It would only hinder any part of what would naturally go
to it from being turned away by the tax into a less natural direction, and would leave the
competition between foreign and domestic industry, after the tax, as nearly as possible
upon the same footing as before it. In Great Britain, when any such tax is laid upon
the produce of domestic industry, it is usual, at the same time, in otder to stop the
clamorous complaints of our merchants and manufacturers, that they will be undersold
at home, to lay a much heavier duty upon the importation of all foreign goods of the
same kind.

This second limitation of the freedom of trade, according to some people,
should, upon most occasions, be extended much farther than to the precise foreign
commodities which could come into competition with those which had been taxed at
home. When the necessaries of life have been taxed in any country, it becomes proper,
they pretend, to tax not only the like necessaries of life imported from other countries,
but all sorts of foreign goods which can come into competition with any thing that
is the produce of domestic industry. Subsistence, they say, becomes necessarily dearer
in consequence of such taxes; and the price of labour must always rise with the price
of the labourer’s subsistence. Every commodity, therefore, which is the produce of
domestic industry, though not immediately taxed itself, becomes dearer in consequence
of such taxes, because the labour which produces it becomes so. Such taxes, therefore,
are really equivalent, they say, to a tax upon every particular commodity produced at
home. In order to put domestic upon the same footing with foreign industry, therefore,
it becomes necessary, they think, to lay some duty upon every foreign commodity, equal
to this enhancement of the price of the home commodities with which it can come
into competition.

Whether taxes upon the necessaries of life, such as those in Great Britain upon
soap, salt, leather, candles, etc. necessarily raise the price of labour, and consequently
that of all other commodities, I shall consider hereafter, when I come to treat of taxes.
Supposing, however, in the mean time, that they have this effect, and they have it
undoubtedly, this general enhancement of the price of all commodities, in consequence
of that labour, is a case which differs in the two following respects from that of a
particular commodity, of which the price was enhanced by a particular tax immediately
imposed upon it.

First, It might always be known with great exactness, how far the price of such a
commodity could be enhanced by such a tax; but how far the general enhancement
of the price of labour might affect that of every different commodity about which
labour was employed, could never be known with any tolerable exactness. It would

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be impossible, therefore, to proportion, with any tolerable exactness, the tax of every
foreign, to the enhancement of the price of every home commodity.

Secondly, Taxes upon the necessaries of life have nearly the same effect upon the
circumstances of the people as a poor soil and a bad climate. Provisions are thereby
rendered dearer, in the same mannet as if it required extraordinary labour and expense
to raise them. As, in the natural scarcity arising from soil and climate, it would be
absurd to direct the people in what manner they ought to employ their capitals and
industry, so is it likewise in the artificial scarcity arising from such taxes. To be left to
accommodate, as well as they could, their industry to their situation, and to find out
those employments in which, notwithstanding their unfavourable circumstances, they
might have some advantage either in the home or in the foreign market, is what, in
both cases, would evidently be most for their advantage. To lay a new-tax upon them,
because they are already overburdened with taxes, and because they already pay too
dear for the necessaries of life, to make them likewise pay too dear for the greater part
of other commodities, is certainly a most absurd way of making amends.

Such taxes, when they have grown up to a certain height, are a curse equal to the
barrenness of the earth, and the inclemency of the heavens, and yet it is in the richest
and most industrious countries that they have been most generally imposed. No other
countries could support so great a disorder. As the strongest bodies only can live and
enjoy health under an unwholesome regimen, so the nations only, that in every sort
of industry have the greatest natural and acquired advantages, can subsist and prosper
under such taxes. Holland is the country in Europe in which they abound most, and
which, from peculiar circumstances, continues to prosper, not by means of them, as
has been most absurdly supposed, but in spite of them.

As there are two cases in which it will generally be advantageous to lay some burden
upon foreign for the encouragement of domestic industry, so there are two others in
which it may sometimes be a matter of deliberation, in the one, how far it is proper to
continue the free importation of certain foreign goods; and, in the other, how far, or
in what manner, it may be proper to restore that free importation, after it has been for
some time interrupted.

The case in which it may sometimes be a matter of deliberation how far it is proper
to continue the free importation of certain foreign goods, is when some foreign nation
restrains, by high duties or prohibitions, the importation of some of our manufactures
into their country. Revenge, in this case, naturally dictates retaliation, and that we should
impose the like duties and prohibitions upon the importation of some or all of their
manufactures into ours. Nations, accordingly, seldom fail to retaliate in this mannet.
The French have been particularly forward to favour their own manufactures, by
restraining the importation of such foreign goods as could come into competition with
them. In this consisted a great part of the policy of Mr Colbert, who, notwithstanding
his great abilities, seems in this case to have been imposed upon by the sophistry of
merchants and manufacturers, who are always demanding a monopoly against their
countrymen. It is at present the opinion of the most intelligent men in France, that his

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operations of this kind have not been beneficial to his country. That minister, by the
tariff of 1667, imposed very high duties upon a great number of foreign manufactures.
Upon his refusing to moderate them in favour of the Dutch, they, in 1671, prohibited
the importation of the wines, brandies, and manufactures of France. The war of
1672 seems to have been in part occasioned by this commercial dispute. The peace
of Nimeguen put an end to it in 1678, by moderating some of those duties in favour
of the Dutch, who in consequence took off their prohibition. It was about the same
time that the French and English began mutually to oppress each other’s industry, by
the like duties and prohibitions, of which the French, however, seem to have set the
first example, The spirit of hostility which has subsisted between the two nations ever
since, has hitherto hindered them from being moderated on either side. In 1697, the
Ehelish prohibited the importation of bone lace, the manufacture of Flanders. The
government of that country, at that time under the dominion of Spain, prohibited,
in return, the importation of English woollens. In 1700, the prohibition of importing
bone lace into England was taken oft; upon condition that the importation of English
woollens into Flanders should be put on the same footing as before.

There may be good policy in retaliations of this kind, when there is a probability
that they will procure the repeal of the high duties or prohibitions complained of. The
recovery of a great foreign market will generally more than compensate the transitory
inconveniency of paying dearer during a short time for some sorts of goods. To judge
whether such retaliations are likely to produce such an effect, does not, perhaps, belong
so much to the science of a legislator, whose deliberations ought to be governed by
general principles, which are always the same, as to the skill of that insidious and crafty
animal vulgarly called a statesman or politician, whose councils are directed by the
momentary fluctuations of affairs. When there is no probability that any such repeal
can be procured, it seems a bad method of compensating the injury done to certain
classes of our people, to do another injury ourselves, not only to those classes, but to
almost all the other classes of them. When our neighbours prohibit some manufacture
of ours, we generally prohibit, not only the same, for that alone would seldom affect
them considerably, but some other manufacture of theirs. This may, no doubt, give
encouragement to some particular class of workmen among ourselves, and, by
excluding some of their rivals, may enable them to raise their price in the home market.
Those workmen however, who suffered by our neighbours prohibition, will not be
benefited by ours. On the contrary, they, and almost all the other classes of our citizens,
will thereby be obliged to pay dearer than before for certain goods. Every such law,
therefore, imposes a real tax upon the whole country, not in favour of that particular
class of workmen who were injured by our neighbours prohibitions, but of some other
class.

The case in which it may sometimes be a matter of deliberation, how far, or in what
manner, it is proper to restore the free importation of foreign goods, after it has been
for some time interrupted, is when particular manufactures, by means of high duties or
prohibitions upon all foreign goods which can come into competition with them, have

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been so far extended as to employ a great multitude of hands. Humanity may in this case
require that the freedom of trade should be restored only by slow gradations, and with
a good deal of reserve and circumspection. Were those high duties and prohibitions
taken away all at once, cheaper foreign goods of the same kind might be poured so
fast into the home market, as to deprive all at once many thousands of our people of
their ordinary employment and means of subsistence. The disorder which this would
occasion might no doubt be very considerable. It would in all probability, however, be
much less than is commonly imagined, for the two following reasons.

First, All those manufactures of which any part is commonly exported to other
European countries without a bounty, could be very little affected by the freest
importation of foreign goods. Such manufactures must be sold as cheap abroad as
any other foreign goods of the same quality and kind, and consequently must be sold
cheaper at home. They would still, therefore, keep possession of the home market;
and though a capricious man of fashion might sometimes prefer foreign wares, merely
because they were foreign, to cheaper and better goods of the same kind that were
made at home, this folly could, from the nature of things, extend to so few, that it could
make no sensible impression upon the general employment of the people. But a great
part of all the different branches of our woollen manufacture, of our tanned leather,
and of our hardware, are annually exported to other European countries without any
bounty, and these are the manufactures which employ the greatest number of hands.
The silk, perhaps, is the manufacture which would suffer the most by this freedom of
trade, and after it the linen, though the latter much less than the former.

Secondly, Though a great number of people should, by thus restoring the freedom
of trade, be thrown all at once out of their ordinary employment and common method
of subsistence, it would by no means follow that they would thereby be deprived either
of employment or subsistence. By the reduction of the army and navy at the end
of the late war, more than 100,000 soldiers and seamen, a number equal to what is
employed in the greatest manufactures, were all at once thrown out of their ordinary
employment: but though they no doubt suffered some inconveniency, they were not
thereby deprived of all employment and subsistence. The greater part of the seamen,
it is probable, gradually betook themselves to the merchant service as they could find
occasion, and in the mean time both they and the soldiers were absorbed in the great
mass of the people, and employed in a great variety of occupations. Not only no great
convulsion, but no sensible disorder, arose from so great a change in the situation
of more than 100,000 men, all accustomed to the use of arms, and many of them to
rapine and plunder. The number of vagrants was scarce anywhere sensibly increased
by it; even the wages of labour were not reduced by it in any occupation, so far as
I have been able to learn, except in that of seamen in the merchant service. But if
we compare together the habits of a soldier and of any sort of manufacturer, we
shall find that those of the latter do not tend so much to disqualify him from being
employed in a new trade, as those of the former from being employed in any. The
manufacturer has always been accustomed to look for his subsistence from his labour

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only; the soldier to expect it from his pay. Application and industry have been familiar
to the one; idleness and dissipation to the other. But it is surely much easier to change
the direction of industry from one sort of labour to another, than to turn idleness
and dissipation to any. To the greater part of manufactures, besides, it has already
been observed, there are other collateral manufactures of so similar a nature, that a
workman can easily transfer his industry from one of them to another. The greater part
of such workmen, too, are occasionally employed in country labour. The stock which
employed them in a particular manufacture before, will still remain in the country, to
employ an equal number of people in some other way. The capital of the country
remaining the same, the demand for labour will likewise be the same, or very nearly
the same, though it may be exerted in different places, and for different occupations.
Soldiers and seamen, indeed, when discharged from the king’s service, are at liberty to
exercise any trade within any town or place of Great Britain or Ireland. Let the same
natural liberty of exercising what species of industry they please, be restored to all his
Majesty’s subjects, in the same manner as to soldiers and seamen; that is, break down
the exclusive privileges of corporations, and repeal the statute of apprenticeship, both
which are really encroachments upon natural Liberty, and add to those the repeal of
the law of settlements, so that a poor workman, when thrown out of employment,
either in one trade or in one place, may seek for it in another trade or in another place,
without the fear either of a prosecution or of a removal; and neither the public nor
the individuals will suffer much more from the occasional disbanding some particular
classes of manufacturers, than from that of the soldiers. Our manufacturers have no
doubt great merit with their country, but they cannot have more than those who defend
it with their blood, nor deserve to be treated with more delicacy.

To expect, indeed, that the freedom of trade should ever be entirely restored in Great
Britain, is as absurd as to expect that an Oceana or Utopia should ever be established
in it. Not only the prejudices of the public, but, what is much more unconquerable,
the private interests of many individuals, irresistibly oppose it. Were the officers of
the army to oppose, with the same zeal and unanimity, any reduction in the number
of forces, with which master manufacturers set themselves against every law that is
likely to increase the number of their rivals in the home market; were the former to
animate their soldiers. In the same manner as the latter inflame their workmen, to
attack with violence and outrage the proposers of any such regulation; to attempt to
reduce the army would be as dangerous as it has now become to attempt to diminish,
in any respect, the monopoly which our manufacturers have obtained against us. This
monopoly has so much increased the number of some particular tribes of them, that,
like an overgrown standing army, they have become formidable to the government,
and, upon many occasions, intimidate the legislature. The member of parliament who
supports every proposal for strengthening this monopoly, is sure to acquire not only
the reputation of understanding trade, but great popularity and influence with an order
of men whose numbers and wealth render them of great importance. If he Opposes
them, on the contrary, and still more, if he has authority enough to be able to thwart

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them, neither the most acknowledged probity, nor the highest rank, nor the greatest
public services, can protect him from the most infamous abuse and detraction, from
personal insults, nor sometimes from real danger, arising from the insolent outrage of
furious and disappointed monopolists.

The undertaker of a great manufacture, who, by the home markets being suddenly
laid open to the competition of foreigners, should be obliged to abandon his trade,
would no doubt suffer very considerably. That part of his capital which had usually
been employed in purchasing materials, and in paying his workmen, might, without
much difficulty, perhaps, find another employment; but that part of it which was fixed
in workhouses, and in the instruments of trade, could scarce be disposed of without
considerable loss. The equitable regard, therefore, to his interest, requires that changes
of this kind should never be introduced suddenly, but slowly, gradually, and after a very
long warning. The legislature, were it possible that its deliberations could be always
directed, not by the clamorous importunity of partial interests, but by an extensive
view of the general good, ought, upon this very account, perhaps, to be particularly
careful, neither to establish any new monopolies of this kind, nor to extend further
those which are already established. Every such regulation introduces some degree of
real disorder into the constitution of the state, which it will be difficult afterwards to
cute without occasioning another disorder.

How far it may be proper to impose taxes upon the importation of foreign goods,
in order not to prevent their importation, but to raise a revenue for government, | shall
consider hereafter when I come to treat of taxes. Taxes imposed with a view to prevent,
or even to diminish importation, are evidently as destructive of the revenue of the
customs as of the freedom of trade.

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CHAPTER III.

OF THE EXTRAORDINARY
RESTRAINTS UPON THE IM-
PORTATION OF GOODS OF AL-
MOST ALL KINDS, FROM THOSE
COUNTRIES WITH WHICH THE
BALANCE IS SUPPOSED TO BE
DISADVANTAGEOUS.

PART I

Of the Unreasonableness of those Restraints, even upon the Principles of the
Commercial System.

To lay extraordinary restraints upon the importation of goods of almost all kinds,
from those particular countries with which the balance of trade is supposed to be
disadvantageous, is the second expedient by which the commercial system proposes
to increase the quantity of gold and silver. Thus, in Great Britain, Silesia lawns may
be imported for home consumption, upon paying certain duties; but French cambrics
and lawns are prohibited to be imported, except into the port of London, there to be
warehoused for exportation. Higher duties are imposed upon the wines of France than
upon those of Portugal, or indeed of any other country. By what is called the impost
1692, a duty of five and-twenty per cent. of the rate or value, was laid upon all French
goods; while the goods of other nations were, the greater part of them, subjected
to much lighter duties, seldom exceeding five per cent. The wine, brandy, salt, and
vinegar of France, were indeed excepted; these commodities being subjected to other
heavy duties, either by other laws, or by particular clauses of the same law. In 1696,
a second duty of twenty-five per cent. the first not having been thought a sufficient

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discouragement, was imposed upon all French goods, except brandy; together with a
new duty of five-and-twenty pounds upon the ton of French wine, and another of
fifteen pounds upon the ton of French vinegar. French goods have never been omitted
in any of those general subsidies or duties of five per cent. which have been imposed
upon all, or the greater part, of the goods enumerated in the book of rates. If we count
the one-third and two-third subsidies as making a complete subsidy between them,
there have been five of these general subsidies; so that, before the commencement of
the present war, seventy-five per cent. may be considered as the lowest duty to which
the greater part of the goods of the growth, produce, or manufacture of France, were
liable. But upon the greater part of goods, those duties are equivalent to a prohibition.
The French, in their turn, have, I believe, treated our goods and manufactures just as
hardly; though I am not so well acquainted with the particular hardships which they
have imposed upon them. Those mutual restraints have put an end to almost all fair
commerce between the two nations; and smugglers are now the principal importers,
either of British goods into France, or of French goods into Great Britain. The
principles which I have been examining, in the foregoing chapter, took their origin
from private interest and the spirit of monopoly; those which I am going te examine
in this, from national prejudice and animosity. They are, accordingly, as might well
be expected, still more unreasonable. They are so, even upon the principles of the
commercial system.

First, Though it were certain that in the case of a free trade between France
and England, for example, the balance would be in favour of France, it would by
no means follow that such a trade would be disadvantageous to England, or that the
general balance of its whole trade would thereby be turned more against it. If the
wines of France are better and cheaper than those of Portugal, or its linens than those
of Germany, it would be more advantageous for Great Britain to purchase both the
wine and the foreign linen which it had occasion for of France, than of Portugal and
Germany. Though the value of the annual importations from France would thereby be
greatly augmented, the value of the whole annual importations would be diminished,
in proportion as the French goods of the same quality were cheaper than those of the
other two countries. This would be the case, even upon the supposition that the whole
French goods imported were to be consumed in Great Britain.

But, Secondly, A great part of them might be re-exported to other countries,
where, being sold with profit, they might bring back a return, equal in value, perhaps,
to the prime cost of the whole French goods imported. What has frequently been said
of the East India trade, might possibly be true of the French; that though the greater
part of East India goods were bought with gold and silver, the re-exportation of a part
of them to other countries brought back more gold and silver to that which carried on
the trade, than the prime cost of the whole amounted to. One of the most important
branches of the Dutch trade at present, consists in the carriage of French goods to
other European countries. Some part even of the French wine drank in Great Britain,
is clandestinely imported from Holland and Zealand. If there was either a free trade

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between France and England, or if French goods could be imported upon paying only
the same duties as those of other European nations, to be drawn back upon exportation,
England might have some share of a trade which is found so advantageous to Holland.

Thirdly, and lastly, There is no certain criterion by which we can determine on
which side what is called the balance between any two countries lies, or which of
them exports to the greatest value. National prejudice and animosity, prompted always
by the private interest of particular traders, are the principles which generally direct
out judgment upon all questions concerning it. There are two criterions, however,
which have frequently been appealed to upon such occasions, the custom-house books
and the course of exchange. The custom-house books, I think, it is now generally
acknowledged, are a very uncertain criterion, on account of the inaccuracy of the
valuation at which the greater part of goods are rated in them. The course of exchange
is, perhaps, almost equally so.

When the exchange between two places, such as London and Paris, is at par, it is
said to be a sign that the debts due from London to Paris are compensated by those
due from Paris to London. On the contrary, when a premium is paid at London for a
bill upon Paris, it is said to be a sign that the debts due from London to Paris are not
compensated by those due from Paris to London, but that a balance in money must be
sent out from the latter place; for the risk, trouble, and expense, of exporting which,
the premium is both demanded and given. But the ordinary state of debt and credit
between those two cities must necessarily be regulated, it is said, by the ordinary course
of their dealings with one another. When neither of them imports from from other
to a greater amount than it exports to that other, the debts and credits of each may
compensate one another. But when one of them imports from the other to a greater
value than it exports to that other, the former necessarily becomes indebted to the
latter in a greater sum than the latter becomes indebted to it: the debts and credits of
each do not compensate one another, and money must be sent out from that place of
which the debts overbalance the credits. The ordinary course of exchange, therefore,
being an indication of the ordinary state of debt and credit between two places, must
likewise be an indication of the ordinary course of their exports and imports, as these
necessarily regulate that state.

But though the ordinary course of exchange shall be allowed to be a sufficient
indication of the ordinary state of debt and credit between any two places, it would
not from thence follow, that the balance of trade was in favour of that place which
had the ordinary state of debt and credit in its favour. The ordinary state of debt and
credit between any two places is not always entirely regulated by the ordinary course
of their dealings with one another, but is often influenced by that of the dealings of
either with many other places. If it is usual, for example, for the merchants of England
to pay for the goods which they buy of Hamburg, Dantzic, Riga, etc. by bills upon
Holland, the ordinary state of debt and credit between England and Holland will not
be regulated entirely by the ordinary course of the dealings of those two countries with
one another, but will be influenced by that of the dealings in England with those other

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places. England may be obliged to send out every year money to Holland, though its
annual exports to that country may exceed very much the annual value of its imports
from thence, and though what is called the balance of trade may be very much in
favour of England.

In the way, besides, in which the par of exchange has hitherto been computed,
the ordinary course of exchange can afford no sufficient indication that the ordinary
state of debt and credit is in favour of that country which seems to have, or which is
supposed to have, the ordinary course of exchange in its favour; or, in other words, the
real exchange may be, and in fact often is, so very different from the computed one,
that, from the course of the latter, no certain conclusion can, upon many occasions, be
drawn concerning that of the former.

When for a sum or money paid in England, containing, according to the standard
of the English mint, a certain number of ounces of pure silver, you receive a bill
for a sum of money to be paid in France, containing, according to the standard of
the French mint, an equal number of ounces of pure silver, exchange is said to be
at par between England and France. When you pay more, you are supposed to give a
premium, and exchange is said to be against England, and in favour of France. When
you pay less, you are supposed to get a premium, and exchange is said to be against
France, and in favour of England.

But, first, We cannot always judge of the value of the current money of different
countries by the standard of their respective mints. In some it is more, in others it is less
worn, clipt, and otherwise degenerated from that standard. But the value of the current
coin of every country, compared with that of any other country, is in proportion, not to
the quantity of pure silver which it ought to contain, but to that which it actually does
contain. Before the reformation of the silver coin in King William’s time, exchange
between England and Holland, computed in the usual manner, according to the
standard of their respective mints, was five-and twenty per cent. against England. But
the value of the current coin of England, as we learn from Mr Lowndes, was at that time
rather more than five-and-twenty per cent. below its standard value. The real exchange,
therefore, may even at that time have been in favour of England, notwithstanding the
computed exchange was so much against it; a smaller number or ounces of pure silver,
actually paid in England, may have purchased a bill for a greater number of ounces
of pure silver to be paid in Holland, and the man who was supposed to give, may in
reality have got the premium. The French coin was, before the late reformation of the
English gold coin, much less wore than the English, and was perhaps two or three per
cent. nearer its standard. If the computed exchange with France, therefore, was not
more than two or three per cent. against England, the real exchange might have been
in its favour. Since the reformation of the gold coin, the exchange has been constantly
in favour of England, and against France.

Secondly, In some countries the expense of coinage is defrayed by the government;
in others, it is defrayed by the private people, who carry their bullion to the mint, and
the government even derives some revenue from the coinage. In England it is defrayed

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by the government; and if you carry a pound weight of standard silver to the mint,
you get back sixty-two shillings, containing a pound weight of the like standard silver.
In France a duty of eight per cent. is deducted for the coinage, which not only defrays
the expense of it, but affords a small revenue to the government. In England, as the
coinage costs nothing, the current coin can never be much more valuable than the
quantity of bullion which it actually contains. In France, the workmanship, as you pay
for it, adds to the value, in the same manner as to that of wrought plate. A sum of
French money, therefore, containing an equal weight of pure silver, is more valuable
than a sum of English money containing an equal weight of pure silver, and must
require more bullion, or other commodities, to purchase it. Though the current coin of
the two countries, therefore, were equally near the standards of their respective mints,
a sum of English money could not well purchase a sum of French money containing
an equal number of ounces of pute silver, nor, consequently, a bill upon France for
such a sum. If, for such a bill, no more additional money was paid than what was
sufficient to compensate the expense of the French coinage, the real exchange might
be at par between the two countries; their debts and credits might mutually compensate
one another, while the computed exchange was considerably in favour of France. If
less than this was paid, the real exchange might be in favour of England, while the
computed was in favour of France.

Thirdly, and lastly, In some places, as at Amsterdam, Hamburg, Venice, etc. foreign
bills of exchange are paid in what they call bank money; while in others, as at London,
Lisbon, Antwerp, Leghorn, etc. they are paid in the common currency of the country.
What is called bank money, is always of more value than the same nominal sum of
common currency. A thousand guilders in the bank of Amsterdam, for example, are of
more value than a thousand guilders of Amsterdam currency. The difference between
them is called the agio of the bank, which at Amsterdam is generally about five per
cent. Supposing the current money of the two countries equally near to the standard
of their respective mints, and that the one pays foreign bills in this common currency,
while the other pays them in bank money, it is evident that the computed exchange may
be in favour of that which pays in bank money, though the real exchange should be in
favour of that which pays in current money; for the same reason that the computed
exchange may be in favour of that which pays in better money, or in money nearer
to its own standard, though the real exchange should be in favour of that which pays
in worse. The computed exchange, before the late reformation of the gold coin, was
generally against London with Amsterdam, Hamburg, Venice, and, I believe, with
all other places which pay in what is called bank money. It will by no means follow,
however, that the real exchange was against it. Since the reformation of the gold coin,
it has been in favour of London, even with those places. The computed exchange has
generally been in favour of London with Lisbon, Antwerp, Leghorn, and, if you except
France, I believe with most other parts of Burope that pay in common currency; and
it is not improbable that the real exchange was so too.

Digression concerning Banks of Deposit, particularly concerning that of

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Amsterdam.

The currency of a great state, such as France or England, generally consists almost
entirely of its own coin. Should this currency, therefore, be at any time worn, clipt, or
otherwise degraded below its standard value, the state, by a reformation of its coin, can
effectually re-establish its currency. But the currency of a small state, such as Genoa
or Hamburg, can seldom consist altogether in its own coin, but must be made up, in
a great measure, of the coins of all the neighbouring states with which its inhabitants
have a continual intercourse. Such a state, therefore, by reforming its coin, will not
always be able to reform its currency. If foreign bills of exchange are paid in this
currency, the uncertain value of any sum, of what is in its own nature so uncertain,
must render the exchange always very much against such a state, its currency being in
all foreign states necessarily valued even below what it is worth.

In order to remedy the inconvenience to which this disadvantageous exchange
must have subjected their merchants, such small states, when they began to attend to
the interest of trade, have frequently enacted that foreign bills of exchange of a certain
value should be paid, not in common currency, but by an order upon, or by a transfer
in the books of a certain bank, established upon the credit, and under the protection
of the state, this bank being always obliged to pay, in good and true money, exactly
according to the standard of the state. The banks of Venice, Genoa, Amsterdam,
Hamburg, and Nuremberg, seem to have been all originally established with this view,
though some of them may have afterwards been made subservient to other purposes.
The money of such banks, being better than the common currency of the country,
necessarily bore an agio, which was greater or smaller, according as the currency was
supposed to be more or less degraded below the standard of the state. The agio of the
bank of Hamburg, for example, which is said to be commonly about fourteen per cent.
is the supposed difference between the good standard money of the state, and the clipt,
worn, and diminished currency, poured into it from all the neighbouring states.

Before 1609, the great quantity of clipt and worn foreign coin which the extensive
trade of Amsterdam brought from all parts of Europe, reduced the value of its
currency about nine per cent. below that of good money fresh from the mint. Such
money no sooner appeared, than it was melted down or carried away, as it always is in
such circumstances. The merchants, with plenty of currency, could not always find a
sufficient quantity of good money to pay their bills of exchange; and the value of those
bills, in spite of several regulations which were made to prevent it, became in a great
measure uncertain.

In order to remedy these inconveniencies, a bank was established in 1609, under the
guarantee of the city. This bank received both foreign coin, and the light and worn coin
of the country, at its real intrinsic value in the good standard money of the country,
deducting only so much as was necessary for defraying the expense of coinage and the
other necessary expense of management. For the value which remained after this small
deduction was made, it gave a credit in its books. This credit was called bank money,
which, as it represented money exactly according to the standard of the mint, was

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always of the same real value, and intrinsically worth more than current money. It was
at the same time enacted, that all bills drawn upon or negotiated at Amsterdam, of the
value of 600 guilders and upwards, should be paid in bank money, which at once took
away all uncertainty in the value of those bills. Every merchant, in consequence of this
regulation, was obliged to keep an account with the bank, in order to pay his foreign
bills of exchange, which necessarily occasioned a certain demand for bank money.

Bank money, over and above both its intrinsic superiority to currency, and the
additional value which this demand necessarily gives it, has likewise some other
advantages, It is secure from fire, robbery, and other accidents; the city of Amsterdam
is bound for it; it can be paid away by a simple transfer, without the trouble of counting,
or the risk of transporting it from one place to another. In consequence of those
different advantages, it seems from the beginning to have borne an agio; and it is
generally believed that all the money originally deposited in the bank, was allowed to
remain there, nobody caring to demand payment of a debt which he could sell for a
premium in the market. By demanding payment of the bank, the owner of a bank credit
would lose this premium. As a shilling fresh from the mint will buy no more goods in
the market than one of our common worn shillings, so the good and true money which
might be brought from the coffers of the bank into those of a private person, being
mixed and confounded with the common currency of the country, would be of no
more value than that currency, from which it could no longer be readily distinguished.
While it remained in the coffers of the bank, its superiority was known and ascertained.
When it had come into those of a private person, its superiority could not well be
ascertained without more trouble than perhaps the difference was worth. By being
brought from the coffers of the bank, besides, it lost all the other advantages of bank
money; its security, its easy and safe transferability, its use in paying foreign bills of
exchange. Over and above all this, it could not be brought from those coffers, as will
appear by and by, without previously paying for the keeping.

Those deposits of coin, or those deposits which the bank was bound to restore
in coin, constituted the original capital of the bank, or the whole value of what was
represented by what is called bank money. At present they are supposed to constitute
but a very small part of it. In order to facilitate the trade in bullion, the bank has been
for these many years in the practice of giving credit in its books, upon deposits of gold
and silver bullion. This credit is generally about five per cent. below the mint price
of such bullion. The bank grants at the same time what is called a recipice or receipt,
entitling the person who makes the deposit, or the bearer, to take out the bullion again
at any time within six months, upon transferring to the bank a quantity of bank money
equal to that for which credit had been given in its books when the deposit was made,
and upon paying one-fourth per cent. for the keeping, if the deposit was in silver; and
one-half per cent. if it was in gold; but at the same time declaring, that in default of
such payment, and upon the expiration of this term, the deposit should belong to the
bank, at the price at which it had been received, or for which credit had been given in
the transfer books. What is thus paid for the keeping of the deposit may be considered

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as a sort of warehouse rent; and why this warehouse rent should be so much dearer
for gold than for silver, several different reasons have been assigned. The fineness of
gold, it has been said, is more difficult to be ascertained than that of silver. Frauds are
more easily practised, and occasion a greater loss in the most precious metal. Silver,
besides, being the standard metal, the state, it has been said, wishes to encourage more
the making of deposits of silver than those of gold.

Deposits of bullion are most commonly made when the price is somewhat lower
than ordinary, and they are taken out again when it happens to rise. In Holland the
market price of bullion is generally above the mint price, for the same reason that it
was so in England before the late reformation of the gold coin. The difference is said
to be commonly from about six to sixteen stivers upon the mark, or eight ounces of
silver, of eleven parts of fine and one part alloy. The bank price, or the credit which
the bank gives for the deposits of such silver (when made in foreign coin, of which the
fineness is well known and ascertained, such as Mexico dollars), is twenty-two guilders
the mark: the mint price is about twenty-three guilders, and the market price is from
twenty-three guilders six, to twenty-three guilders sixteen stivers, or from two to three
per cent. above the mint price.

The following are the prices at which the bank of Amsterdam at present {September
1775} receives bullion and coin of different kinds:

SILVER
Mexicordollarss..nciu.s...: 22 Guilders / mark
Prenela crowns) acacia ae.
English silver coin............ 22.
Mexico dollars, new coin........ 217 10
Drertoonsee ei 20)
Rixtdollarseets). ect. Dees
Bar silver, containing 11-12ths fine silver, 21 Guilders / mark, and in this proportion
down to 1-4th fine, on which 5 guilders are given. Fine bars,...........0 28 Guilders /
mark.
GOLD
Pornugal coin. ..8.e 310 Guilders / mark
CSAIL AS Meare 310
TipiisicsOts anew c-o-) 510)
Ditto Old. ee: 300
INewrdutatss les. he. 4 19 8 per ducat

Bar or ingot gold is received in proportion to its fineness, compared with the above
foreign gold coin. Upon fine bars the bank gives 340 pet mark. In general, however,
something more is given upon coin of a known fineness, than upon gold and silver
bars, of which the fineness cannot be ascertained but by a process of melting and
assaying. |

The proportions between the bank price, the mint price, and the market price
of gold bullion, are nearly the same. A person can generally sell his receipt for the

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difference between the mint price of bullion and the market price. A receipt for bullion
is almost always worth something, and it very seldom happens, therefore, that anybody
suffers his receipts to expire, or allows his bullion to fall to the bank at the price at
which it had been received, either by not taking it out before the end of the six months,
or by neglecting to pay one fourth or one half per cent. in order to obtain a new
receipt for another six months. This, however, though it happens seldom, is said to
happen sometimes, and more frequently with regard to gold than with regard to silver,
on account of the higher warehouse rent which is paid for the keeping of the more
precious metal.

The person who, by making a deposit of bullion, obtains both a bank credit anda
receipt, pays his bills of exchange as they become due, with his bank credit; and either
sells or keeps his receipt, according as he judges that the price of bullion is likely to
rise or to fall. The receipt and the bank credit seldom keep long together, and there is
no occasion that they should. The person who has a receipt, and who wants to take
out bullion, finds always plenty of bank credits, or bank money, to buy at the ordinary
price, and the person who has bank money, and wants to take out bullion, finds receipts
always in equal abundance.

The owners of bank credits, and the holders of receipts, constitute two different
sorts of creditors against the bank. The holder of a receipt cannot draw out the bullion
for which it is granted, without re-assigning to the bank a sum of bank money equal
to the price at which the bullion had been received. If he has no bank money of his
own, he must purchase it of those who have it. The owner of bank money cannot
draw out bullion, without producing to the bank receipts for the quantity which he
wants. If he has none of his own, he must buy them of those who have them. The
holder of a receipt, when he purchases bank money, purchases the power of taking out
a quantity of bullion, of which the mint price is five per cent. above the bank price.
The agio of five per cent. therefore, which he commonly pays for it, is paid, not for an
imaginary, but for a real value. The owner of bank money, when he purchases a receipt,
purchases the power of taking out a quantity of bullion, of which the market price is
commonly from two to three per cent. above the mint price. The price which he pays
for it, therefore, is paid likewise for a real value. The price of the receipt, and the price
of the bank money, compound or make up between them the full value or price of the
bullion.

Upon deposits of the coin current in the country, the bank grant receipts likewise,
as well as bank credits; but those receipts are frequently of no value and will bring no
price in the market. Upon ducatoons, for example, which in the cutrency pass for three
guilders three sttvers each, the bank gives a credit of three guilders only, or five per
cent. below their current value. It grants a receipt likewise, entitling the bearer to take
out the number of ducatoons deposited at any time within six months, upon paying
one fourth per cent. for the keeping, This receipt will frequently bring no price in the
market. Three guilders, bank money, generally sell in the market for three guilders three
stivers, the full value of the ducatoons, if they were taken out of the bank; and before

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they can be taken out, one-fourth per cent. must be paid for the keeping, which would
be mere loss to the holder of the receipt. If the agio of the bank, however, should
at any time fall to three per cent. such receipts might bring some price in the market,
and might sell for one and three-fourths per cent. But the agio of the bank being now
generally about five per cent. such receipts are frequently allowed to expire, or, as they
express it, to fall to the bank. The receipts which are given for deposits of gold ducats
fall to it yet more frequently, because a higher warehouse rent, or one half per cent.
must be paid for the keeping of them, before they can be taken out again. The five per
cent. which the bank gains, when deposits either of coin or bullion are allowed to fall to
it, maybe considered as the warehouse rent for the perpetual keeping of such deposits.

The sum of bank money, for which the receipts are expired, must be very
considerable. It must comprehend the whole original capital of the bank, which, it
is generally supposed, has been allowed to remain there from the time it was first
deposited, nobody caring either to renew his receipt, or to take out his deposit, as, for
the reasons already assigned, neither the one nor the other could be done without loss.
But whatever may be the amount of this sum, the proportion. which it bears to the
whole mass of bank money is supposed to be very small. The bank of Amsterdam has,
for these many years past, been the great warehouse of Europe for bullion, for which
the receipts are very seldom allowed to expire, or, as they express it, to fall to the bank.
The far greater part of the bank money, or of the credits upon the books of the bank,
is supposed to have been created, for these many years past, by such deposits, which
the dealers in bullion are continually both making and withdrawing.

No demand can be made upon the bank, but by means of a recipice or receipt.
The smaller mass of bank money, for which the receipts are expired, is mixed and
confounded with the much greater mass for which they are still in force; so that, though
there may be a considerable sum of bank money, for which there are no receipts, there
is no specific sum or portion of it which may not at any time be demanded by one.
The bank cannot be debtor to two persons for the same thing; and the owner of bank
money who has no receipt, cannot demand payment of the bank till he buys one. In
ordinary and quiet times, he can find no difficulty in getting one to buy at the market
price, which generally corresponds with the price at which he can sell the coin or
bullion it entitles him to take out of the bank.

It might be otherwise during a public calamity; an invasion, for example, such as
that of the French in 1672. The owners of bank money being then all eager to draw it
out of the bank, in order to have it in their own keeping, the demand for receipts might
raise their price to an exorbitant height. The holders of them might form extravagant
expectations, and, instead of two or three per cent. demand half the bank money for
which credit had been given upon the deposits that the receipts had respectively been
granted for. The enemy, informed of the constitution of the bank, might even buy
them up, in order to prevent the carrying away of the treasure. In such emergencies,
the bank, it is supposed, would break through its ordinary rule of making payment
only to the holders of receipts. The holders of receipts, who had no bank money,

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THE WEALTH OF NATIONS

must have received within two or three per cent. of the value of the deposit for which
their respective receipts had been granted. The bank, therefore, it is said, would in this
case make no scruple of paying, either with money or bullion, the full value of what
the owners of bank money, who could get no receipts, were credited for in its books;
paying, at the same time, two or three per cent. to such holders of receipts as had no
bank money, that being the whole value which, in this state of things, could justly be
supposed due to them.

Even in ordinary and quiet times, it is the interest of the holders of receipts to
depress the agio, in order either to buy bank money (and consequently the bullion which
their receipts would then enable them to take out of the bank ) so much cheaper, or to
sell their receipts to those who have bank money, and who want to take out bullion, so
much dearer; the price of a receipt being generally equal to the difference between the
market price of bank money and that of the coin or bullion for which the receipt had
been granted. It is the interest of the owners of bank money, on the contrary, to raise
the agio, in order either to sell their bank money so much dearer, or to buy a receipt
so much cheaper. To prevent the stock-jobbing tricks which those opposite interests
might sometimes occasion, the bank has of late years come to the resolution, to sell at
all times bank money for currency at five per cent. agio, and to buy it in again at four
per cent. agio. In consequence of this resolution, the agio can never either rise above
five, or sink below four per cent.; and the proportion between the market price of bank
and that of current money is kept at all times very near the proportion between their
intrinsic values. Before this resolution was taken, the market price of bank money used
sometimes to rise so high as nine per cent. agio, and sometimes to sink so low as par,
according as opposite interests happened to influence the market.

The bank of Amsterdam professes to lend out no part of what is deposited with
it, but for every guilder for which it gives credit in its books, to keep in its repositories
the value of a guilder either in money or bullion. That it keeps in its repositories all the
money or bullion for which there are receipts in force for which it is at all times liable
to be called upon, and which in reality is continually going from it, and returning to it
again, cannot well be doubted. But whether it does so likewise with regard to that part
of its capital for which the receipts are long ago expired, for which, in ordinary and quiet
times, it cannot be called upon, and which, in reality, is very likely to remain with it for
ever, or as long as the states of the United Provinces subsist, may perhaps appear more
uncertain. At Amsterdam, however, no point of faith is better established than that, for
every guilder circulated as bank money, there is a correspondent guilder in gold or silver
to be found in the treasures of the bank. The city is guarantee that it should be so. The
bank is under the direction of the four reigning burgomasters who are changed every
year. Each new set of burgomasters visits the treasure, compares it with the books,
receives it upon oath, and delivers it over, with the same awful solemnity to the set
which succeeds; and in that sober and religious country, oaths are not yet disregarded.
A rotation of this kind seems alone a sufficient security against any practices which
cannot be avowed. Amidst all the revolutions which faction has ever occasioned in

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the government of Amsterdam, the prevailing party has at no time accused their
predecessors of infidelity in the administration of the bank. No accusation could have
affected more deeply the reputation and fortune of the disgraced party; and if such
an accusation could have been supported, we may be assured that it would have been
brought. In 1672, when the French king was at Utrecht, the bank of Amsterdam paid
so readily, as left no doubt of the fidelity with which it had observed its engagements.
Some of the pieces which were then brought from its repositories, appeared to have
been scorched with the fire which happened in the town-house soon after the bank was
established. Those pieces, therefore, must have lain there from that time.

What may be the amount of the treasure in the bank, is a question which has
long employed the speculations of the curious. Nothing but conjecture can be offered
concerning it. It is generally reckoned, that there are about 2000 people who keep
accounts with the bank; and allowing them to have, one with another, the value of
£1500 sterling lying upon their respective accounts (a very large allowance), the whole
quantity of bank money, and consequently of treasure in the bank, will amount to about
£3,000,000 sterling, or, at eleven guilders the pound sterling, 33,000,000 of guilders; a
great sum, and sufficient to carry on a very extensive circulation, but vastly below the
extravagant ideas which some people have formed of this treasure.

The city of Amsterdam derives a considerable revenue from the bank. Besides what
may be called the warehouse rent above mentioned, each person, upon first opening
an account with the bank, pays a fee of ten guilders; and for every new account, three
guilder’s three stivers; for every transfer, two stivers; and if the transfer is for less than
300 guilders, six stivers, in order to discourage the multiplicity of small transactions.
The person who neglects to balance his account twice in the year, forfeits twenty-five
guilders. The person who ordets a transfer for more than 1s upon his account, is obliged
to pay three per cent. for the sum overdrawn, and his order is set aside into the bargain.
The bank is supposed, too, to make a considerable profit by the sale of the foreign coin
or bullion which sometimes falls to it by the expiring of receipts, and which is always
kept till it can be sold with advantage. It makes a profit, likewise, by selling bank money
at five per cent. agio, and buying it in at four. These different emoluments amount
to a good deal more than what is necessary for paying the salaries of officers, and
defraying the expense of management. What is paid for the keeping of bullion upon
receipts, is alone supposed to amount to a neat annual revenue of between 150,000
and 200,000 guilders. Public utility, however, and not revenue, was the original object
of this institution. Its object was to relieve the merchants from the inconvenience of a
disadvantageous exchange. The revenue which has arisen from it was unforeseen, and
may be considered as accidental. But it is now time to return from this long digression,
into which I have been insensibly led, in endeavouring to explain the reasons why the
exchange between the countries which pay in what is called bank money, and those
which pay in common currency, should generally appear to be in favour of the former,
and against the latter. The former pay in a species of money, of which the intrinsic
value is always the same, and exactly agreeable to the standard of their respective mints;

347.

THE WEALTH OF NATIONS

the latter is a species of money, of which the intrinsic value is continually varying, and
is almost always more or less below that standard.

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PART II.

Of the Unreasonableness of those extraordinary Restraints, upon other Princi-
ples.

In the foregoing part of this chapter, I have endeavoured to show, even upon
the principles of the commercial system, how unnecessary it is to lay extraordinary
restraints upon the importation of goods from those countries with which the balance
of trade is supposed to be disadvantageous.

Nothing, however, can be more absurd than this whole doctrine of the balance
of trade, upon which, not only these restraints, but almost all the other regulations
of commerce, are founded. When two places trade with one another, this doctrine
supposes that, if the balance be even, neither of them either loses or gains; but if
it leans in any degree to one side, that one of them loses, and the other gains, in
proportion to its declension from the exact equilibrium. Both suppositions are false. A
trade, which is forced by means of bounties and monopolies, may be, and commonly
is, disadvantageous to the country in whose favour it is meant to be established, as I
shall endeavour to show hereafter. But that trade which, without force or constraint,
is naturally and regularly carried on between any two places, is always advantageous,
though not always equally so, to both.

By advantage or gain, I understand, not the increase of the quantity of gold and
silver, but that of the exchangeable value of the annual produce of the land and labour
of the country, or the increase of the annual revenue of its inhabitants.

If the balance be even, and if the trade between the two places consist altogether
in the exchange of their native commodities, they will, upon most occasions, not only
both gain, but they will gain equally, or very nearly equally; each will, in this case, afford
a market for a part of the surplus produce of the other; each will replace a capital which
had been employed in raising and preparing for the market this part of the surplus
produce of the other, and which had been distributed among, and given revenue and
maintenance to, a certain number of its inhabitants. Some part of the inhabitants of
each, therefore, will directly derive their revenue and maintenance from the other.
As the commodities exchanged, too, ate supposed to be of equal value, so the two
capitals employed in the trade will, upon most occasions, be equal, or very nearly equal;
and both being employed in raising the native commodities of the two countries, the
revenue and maintenance which their distribution will afford to the inhabitants of
each will be equal, or very nearly equal. This revenue and maintenance, thus mutually
afforded, will be greater or smaller, in proportion to the extent of their dealings. If
these should annually amount to £100,000, for example, or to £1,000,000, on each side,
each of them will afford an annual revenue, in the one case, of £100,000, and, in the
other, of £1,000,000, to the inhabitants of the other.

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THE WEALTH OF NATIONS

If their trade should be of such a nature, that one of them exported to the other
nothing but native commodities, while the returns of that other consisted altogether
in foreign goods; the balance, in this case, would still be supposed even, commodities
being paid for with commodities. They would, in this case too, both gain, but they
would not gain equally; and the inhabitants of the country which exported nothing
but native commodities, would derive the greatest revenue from the trade. If England,
for example, should import from France nothing but the native commodities of that
country, and not having such commodities of its own as were in demand there, should
annually repay them by sending thither a large quantity of foreign goods, tobacco, we
shall suppose, and East India goods; this trade, though it would give some revenue
to the inhabitants of both countries, would give more to those of France than to
those of England. The whole French capital annually employed in it would annually
be distributed among the people of France; but that part of the English capital only,
which was employed in producing the English commodities with which those foreign
goods were purchased, would be annually distributed among the people of England.
The greater part of it would replace the capitals which had been employed in Virginia,
Indostan, and China, and which had given revenue and maintenance to the inhabitants
of those distant countries. If the capitals were equal, or nearly equal, therefore, this
employment of the French capital would augment much more the revenue of the
people of France, than that of the English capital would the revenue of the people of
England. France would, in this case, carry on a direct foreign trade of consumption
with England; whereas England would carry on a round-about trade of the same kind
with France. The different effects of a capital employed in the direct, and of one
employed in the round-about foreign trade of consumption, have already been fully
explained.

There is not, probably, between any two countries, a trade which consists altogether
in the exchange, either of native commodities on both sides, or of native commodities
on one side, and of foreign goods on the other. Almost all countries exchange with
one another, partly nattve and partly foreign goods. That country, however, in whose
cargoes there is the greatest proportion of native, and the least of foreign goods, will
always be the principal gainer.

If it was not with tobacco and East India goods, but with gold and silver, that
England paid for the commodities annually imported from France, the balance, in this
case, would be supposed uneven, commodities not being paid for with commodities,
but with gold and silver. The trade, however, would in this case, as in the foregoing, give
some revenue to the inhabitants of both countries, but more to those of France than to
those of England. It would give some revenue to those of England. The capital which
had been employed in producing the English goods that purchased this gold and silver,
the capital which had been distributed among, and given revenue to, certain inhabitants
of England, would thereby be replaced, and enabled to continue that employment.
The whole capital of England would no more be diminished by this exportation of
gold and silver, than by the exportation of an equal value of any other goods. On

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the contrary, it would, in most cases, be augmented. No goods are sent abroad but
those for which the demand is supposed to be greater abroad than at home, and of
which the returns, consequently, it is expected, will be of more value at home than the
commodities exported. If the tobacco which in England is worth only £100,000, when
sent to France, will purchase wine which is in England worth £110,000, the exchange will
augment the capital of England by £10,000. If £100,000 of English gold, in the same
manner, purchase French wine, which in England is worth £110,000, this exchange will
equally augment the capital of England by £10,000. As a merchant, who has £110,000
worth of wine in his cellar, is a richer man than he who has only £100,000 worth of
tobacco in his warehouse, so is he likewise a richer man than he who has only £100,000
worth of gold in his coffers. He can put into motion a greater quantity of industry,
and give revenue, maintenance, and employment, to a greater number of people, than
either of the other two. But the capital of the country is equal to the capital of all its
different inhabitants; and the quantity of industry which can be annually maintained
in it is equal to what all those different capitals can maintain. Both the capital of the
country, therefore, and the quantity of industry which can be annually maintained in it,
must generally be augmented by this exchange. It would, indeed, be more advantageous
for England that it could purchase the wines of France with its own hardware and
broad cloth, than with either the tobacco of Virginia, or the gold and silver of Brazil
and Peru. A direct foreign trade of consumption is always more advantageous than a
round-about one. But a round-about foreign trade of consumption, which is carried
on with gold and silver, does not seem to be less advantageous than any other equally
round-about one. Neither is a country which has no mines, more likely to be exhausted
of gold and silver by this annual exportation of those metals, than one which does
not grow tobacco by the like annual exportation of that plant. As a country which has
wherewithal to buy tobacco will never be long in want of it, so neither will one be long
in want of gold and silver which has wherewithal to purchase those metals.

It is a losing trade, it is said, which a workman carries on with the alehouse; and the
trade which a manufacturing nation would naturally carry on with a wine country, may
be considered as a trade of the same nature. I answer, that the trade with the alehouse
is not necessarily a losing trade. In its own nature it is just as advantageous as any other,
though, perhaps, somewhat more liable to be abused. The employment of a brewer,
and even that of a retailer of fermented liquors, are as necessary division’s of labour as
any other. It will generally be more advantageous for a workman to buy of the brewer
the quantity he has occasion for, than to brew it himself; and if he is a poor workman,
it will generally be more advantageous for him to buy it by little and little of the retailer,
than a large quantity of the brewer. He may no doubt buy too much of either, as he
may of any other dealers in his neighbourhood; of the butcher, if he is a glutton; or of
the draper, if he affects to be a beau among his companions. It is advantageous to the
great body of workmen, notwithstanding, that all these trades should be free, though
this freedom may be abused in all of them, and is more likely to be so, perhaps, in
some than in others. Though individuals, besides, may sometimes ruin their fortunes

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THE WEALTH OF NATIONS

by an excessive consumption of fermented liquors, there seems to be no risk that a
nation should do so. Though in every country there are many people who spend upon
such liquors more than they can afford, there are always many more who spend less.
It deserves to be remarked, too, that if we consult experience, the cheapness of wine
seems to be a cause, not of drunkenness, but of sobriety. The inhabitants of the wine
countties are in general the soberest people of Europe; witness the Spaniards, the
Italians, and the inhabitants of the southern provinces of France. People are seldom
guilty of excess in what is their daily fare. Nobody affects the character of liberality and
good fellowship, by being profuse of a liquor which is as cheap as small beer. On the
contrary, in the countries which, either from excessive heat or cold, produce no grapes,
and where wine consequently is dear and a rarity, drunkenness is a common vice, as
among the northern nations, and all those who live between the tropics, the negroes,
for example on the coast of Guinea. When a French regiment comes from some of
the northern provinces of France, where wine is somewhat dear, to be quartered in the
southern, where it is very cheap, the soldiers, | have frequently heard it observed, are
at first debauched by the cheapness and novelty of good wine; but after a few months
residence, the greater part of them become as sober as the rest of the inhabitants.
Were the duties upon foreign wines, and the excises upon malt, beer, and ale, to be
taken away all at once, it might, in the same manner, occasion in Great Britain a pretty
general and temporary drunkenness among the middling and inferior ranks of people,
which would probably be soon followed by a permanent and almost universal sobriety.
At present, drunkenness is by no means the vice of people of fashion, or of those who
can easily afford the most expensive liquors. A gentleman drunk with ale has scarce
ever been seen among us. The restraints upon the wine trade in Great Britain, besides,
do not so much seem calculated to hinder the people from going, if I may say so, to
the alehouse, as from going where they can buy the best and cheapest liquor. They
favour the wine trade of Portugal, and discourage that of France. The Portuguese, it
is said, indeed, are better customers for our manufactures than the French, and should
therefore be encouraged in preference to them. As they give us their custom, it is
pretended we should give them ours. The sneaking arts of underling tradesmen are
thus erected into political maxims for the conduct of a great empire; for it is the most
underling tradesmen only who make it a rule to employ chiefly their own customers.
A great trader purchases his goods always where they are cheapest and best, without
regard to any little interest of this kind.

By such maxims as these, however, nations have been taught that their interest
consisted in beggaring all their neighbours. Each nation has been made to look with
an invidious eye upon the prosperity of all the nations with which it trades, and to
consider their gain as its own loss. Commerce, which ought naturally to be, among
nations as among individuals, a bond of union and friendship, has become the most
fertile source of discord and animosity. The capricious ambition of kings and ministers
has not, during the present and the preceding century, been mote fatal to the repose of
Europe, than the impertinent jealousy of merchants and manufacturers. The violence

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and injustice of the rulers of mankind is an ancient evil, for which, I am afraid, the
nature of human affairs can scarce admit of a remedy: but the mean rapacity, the
monopolizing spirit, of merchants and manufacturers, who neither are, nor ought to
be, the rulers of mankind, though it cannot, perhaps, be corrected, may very easily be
prevented from disturbing the tranquillity of anybody but themselves.

That it was the spirit of monopoly which originally both invented and propagated
this doctrine, cannot be doubted and they who first taught it, were by no means such
fools as they who believed it. In every country it always is, and must be, the interest of
the great body of the people, to buy whatever they want of those who sell it cheapest.
The proposition is so very manifest, that it seems ridiculous to take any pains to prove
it; nor could it ever have been called in question, had not the interested sophistry
of merchants and manufacturers confounded the common sense of mankind. Their
interest is, in this respect, directly opposite to that of the great body of the people. As
it is the interest of the freemen of a corporation to hinder the rest of the inhabitants
from employing any workmen but themselves; so it is the interest of the merchants
and manufacturers of every country to secure to themselves the monopoly of the
home market. Hence, in Great Britain, and in most other European countries, the
extraordinary duties upon almost all goods imported by alien merchants. Hence the
high duties and prohibitions upon all those foreign manufactures which can come
into competition with our own. Hence, too, the extraordinary restraints upon the
importation of almost all sorts of goods from those countries with which the balance
of trade is supposed to be disadvantageous; that is, from those against whom national
animosity happens ta be most violently inflamed.

The wealth of neighbouring nations, however, though dangerous in war and
politics, is certainly advantageous in trade. In a state of hostility, it may enable our
enemies to maintain fleets and armies superior to our own; but in a state of peace and
commerce it must likewise enable them to exchange with us to a greater value, and to
afford a better market, either for the immediate produce of our own industry, or for
whatever is purchased with that produce. As a rich man is likely to be a better customer
to the industrious people in his neighbourhood, than a poor, so is likewise a rich nation.
A rich man, indeed, who is himself a manufacturer, is a very dangerous neighbour to
all those who deal in the same way. All the rest of the neighbourhood, however, by
far the greatest number, profit by the good market which his expense affords them.
They even profit by his underselling the poorer workmen who deal in the same way
with him. The manufacturers of a rich nation, in the same manner, may no doubt be
very dangerous rivals to those of their neighbours. This very competition, however, 1s
advantageous to the great body of the people, who profit greatly, besides, by the good
market which the great expense of such a nation affords them in every other way.
Private people, who want to make a fortune, never think of retiring to the remote and
poor provinces of the country, but resort either to the capital, or to some of the great
commercial towns. They know, that where little wealth circulates, there is little to be
got; but that where a great deal is in motion, some share of it may fall to them. The

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THE WEALTH OF NATIONS |

same maxim which would in this manner direct the common sense of one, or ten, or
twenty individuals, should regulate the judgment of one, or ten, or twenty millions, and
should make a whole nation regard the riches of its neighbours, as a probable cause
and occasion for itself to acquire riches. A nation that would enrich itself by foreign
trade, is certainly most likely to do so, when its neighbours are all rich, industrious and
commercial nations. A great nation, surrounded on all sides by wandering savages and
poor barbarians, might, no doubt, acquire riches by the cultivation of its own lands,
and by its own interior commerce, but not by foreign trade. It seems to have been in
this manner that the ancient Egyptians and the modern Chinese acquired their great
wealth. The ancient Egyptians, it is said, neglected foreign commerce, and the modern
Chinese, it is known, hold it in the utmost contempt, and scarce deign to afford it the
decent protection of the laws. The modern maxims of foreign commerce, by aiming at
the impoverishment of all our neighbours, so far as they are capable of producing their
intended effect, tend to render that very commerce insignificant and contemptible.

It is in consequence of these maxims, that the commerce between France and
England has, in both countries, been subjected to so many discouragements and
restraints. If those two countries, however, were to consider their real interest, without
either mercantile jealousy or national animosity, the commerce of France might be
more advantageous to Great Britain than that of any other country, and, for the same
reason, that of Great Britain to France. France is the nearest neighbour to Great
Britain. In the trade between the southern coast of England and the northern and
north-western coast of France, the returns might be expected, in the same manner as
in the inland trade, four, five, or six times in the year. The capital, therefore, employed
in this trade could, in each of the two countries, keep in motion four, five, or six times
the quantity of industry, and afford employment and subsistence to four, five, or six
times the number of people, which all equal capital could do in the greater part of the
other branches of foreign trade. Between the parts of France and Great Britain most
remote from one another, the returns might be expected, at least, once in the year; and
even this trade would so far be at least equally advantageous, as the greater part of the
other branches of our foreign European trade. It would be, at least, three times more
advantageous than the boasted trade with our North American colonies, in which the
returns were seldom made in less than three years, frequently not in less than four
or five years. France, besides, is supposed to contain 24,000,000 of inhabitants. Our
North American colonies were never supposed to contain more than 3,000,000; and
France is a much richer country than North America; though, on account of the more
unequal distribution of riches, there is much more poverty and beggary in the one
country than in the other. France, therefore, could afford a market at least eight times
more extensive, and, on account of the superior frequency of the returns, four-and-
twenty times more advantageous than that which our North American colonies evet
afforded. The trade of Great Britain would be just as advantageous to France, and, in
proportion to the wealth, population, and proximity of the respective countries, would
have the same superiority over that which France carries on with her own colonies.

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Such is the very great difference between that trade which the wisdom of both nations
has thought proper to discourage, and that which it has favoured the most.

But the very same circumstances which would have rendered an open and free
commerce between the two countries so advantageous to both, have occasioned the
principal obstructions to that commerce. Being neighbours, they are necessarily enemies,
and the wealth and power of each becomes, upon that account, more formidable to
the other; and what would increase the advantage of national friendship, serves only to
inflame the violence of national animosity. They are both rich and industrious nations;
and the merchants and manufacturers of each dread the competition of the skill and
activity of those of the other. Mercantile jealousy is excited, and both inflames, and is
itself inflamed, by the violence of national animosity, and the traders of both countries
have announced, with all the passionate confidence of interested falsehood, the certain
ruin of each, in consequence of that unfavourable balance of trade, which, they
pretend, would be the infallible effect of an unrestrained commerce with the other.

There is no commercial country in Europe, of which the approaching ruin has not
frequently been foretold by the pretended doctors of this system, from all unfavourably
balance of trade. After all the anxiety, however, which they have excited about this, after
all the vain attempts of almost all trading nations to turn that balance in their own
favour, and against their neighbours, it does not appear that any one nation in Europe
has been, in any respect, impoverished by this cause. Every town and country, on the
contrary, in proportion as they have opened their ports to all nations, instead of being
ruined by this free trade, as the principles of the commercial system would lead us
to expect, have been enriched by it. Though there are in Europe indeed, a few towns
which, in same respects, deserve the name of free ports, there is no country which does
so. Holland, perhaps, approaches the nearest to this character of any, though still very
remote from it; and Holland, it is acknowledged, not only derives its whole wealth, but
a great part of its necessary subsistence, from foreign trade.

There is another balance, indeed, which has already been explained, very different
from the balance of trade, and which, according as it happens to be either favourable
ot unfavourable, necessarily occasions the prosperity or decay of every nation. This is
the balance of the annual produce and consumption. If the exchangeable value of the
annual produce, it has already been observed, exceeds that of the annual consumption,
the capital of the society must annually increase in proportion to this excess. The society
in this case lives within its revenue; and what is annually saved out of its revenue, is
naturally added to its capital, and employed so as to increase still further the annual
produce. If the exchangeable value of the annual produce, on the contrary, fall short of
the annual consumption, the capital of the society must annually decay in proportion
to this deficiency. The expense of the society, in this case, exceeds its revenue, and
necessarily encroaches upon its capital. Its capital, therefore, must necessarily decay,
and, together with it, the exchangeable value of the annual produce of its industry.

This balance of produce and consumption is entirely different from what is called
the balance of trade. It might take place in a nation which had no foreign trade, but

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which was entirely separated from all the world. It may take place in the whole globe of
the earth, of which the wealth, population, and improvement, may be either gradually
increasing or gradually decaying.

The balance of produce and consumption may be constantly in favour of a nation,
though what is called the balance of trade be generally against it. A nation may import
to a greater value than it exports for half a century, perhaps, together; the gold and
silver which comes into it during all this time, may be all immediately sent out of it; its
circulating coin may gradually decay, different sorts of paper money being substituted in
its place, and even the debts, too, which it contracts in the principal nations with whom
it deals, may be gradually increasing; and yet its real wealth, the exchangeable value of
the annual produce of its lands and labour, may, during the same period, have been
increasing in a much greater proportion. The state of our North American colonies,
and of the trade which they carried on with Great Britain, before the commencement
of the present disturbances, {This paragraph was written in the year 1775.} may serve
as a proof that this is by no means an impossible supposition.

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CHAPTER IV.
OF DRAWBACKS.

erchants and manufacturers are not contented with the monopoly of the home

market, but desire likewise the most extensive foreign sale for their goods. Their
country has no jurisdiction in foreign nations, and therefore can seldom procure them
any monopoly there. They are generally obliged, therefore, to content themselves with
petitioning for certain encouragements to exportation.

Of these encouragements, what are called drawbacks seem to be the most
reasonable. To allow the merchant to draw back upon exportation, either the whole,
ot a part of whatever excise or inland duty is imposed upon domestic industry, can
never occasion the exportation of a greater quantity of goods than what would have
been exported had no duty been imposed. Such encouragements do not tend to turn
towards any particular employment a greater share of the capital of the country, than
what would go to that employment of its own accord, but only to hinder the duty from
driving away any part of that share to other employments. They tend not to overturn
that balance which naturally establishes itself among all the various employments of
the society, but to hinder it from being overturned by the duty. They tend not to destroy,
but to preserve, what it is in most cases advantageous to preserve, the natural division
and distribution of labour in the society.

The same thing may be said of the drawbacks upon the re-exportation of foreign
goods imported, which, in Great Britain, generally amount to by much the largest
part of the duty upon importation. By the second of the rules, annexed to the act
of parliament, which imposed what is now called the old subsidy, every merchant,
whether English or alien. was allowed to draw back half that duty upon exportation;
the English merchant, provided the exportation took place within twelve months;
the alien, provided it took place within nine months. Wines, currants, and wrought
silks, were the only goods which did not fall within this rule, having other and more
advantageous allowances. The duties imposed by this act of parliament were, at that
time, the only duties upon the importation of foreign goods. The term within which
this, and all other drawbacks could be claimed, was afterwards (by 7 Geo. I. chap. 21.
sect. 10.) extended to three years.

The duties which have been imposed since the old subsidy, are, the greater part of
them, wholly drawn back upon exportation. This general rule, however, is liable to a
great number of exceptions; and the doctrine of drawbacks has become a much less
simple matter than it was at their first institution.

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Upon the exportation of some foreign goods, of which it was expected that the
importation would greatly exceed what was necessary for the home consumption,
the whole duties are drawn back, without retaining even half the old subsidy. Before
the revolt of our North American colonies, we had the monopoly of the tobacco of
Maryland and Virginia. We imported about ninety-six thousand hogsheads, and the
home consumption was not supposed to exceed fourteen thousand. To facilitate the
great exportation which was necessary, in order to rid us of the rest, the whole duties
were drawn back, provided the exportation took place within three years.

We still have, though not altogether, yet very nearly, the monopoly of the sugars of
our West Indian islands. If sugars are exported within a year, therefore, all the duties
upon importation are drawn back; and if exported within three years, all the duties,
except half the old subsidy, which still continues to be retained upon the exportation of
the greater part of goods. Though the importation of sugar exceeds a good deal what
is necessary for the home consumption, the excess is inconsiderable, in comparison of
what it used to be in tobacco.

Some goods, the particular objects of the jealousy of our own manufacturers, are
prohibited to be imported for home consumption. They may, however, upon paying
certain duties, be imported and warehoused for exportation. But upon such exportation
no part of these duties is drawn back. Our manufacturers are unwilling, it seems, that
even this restricted importation should be encouraged, and are afraid lest some part of
these goods should be stolen out of the warehouse, and thus come into competition
with their own. It is under these regulations only that we can import wrought silks,
French cambrics and lawns, calicoes, painted, printed, stained, or dyed, etc.

We are unwilling even to be the carriers of French goods, and choose rather to
forego a profit to ourselves than to suffer those whom we consider as our enemies to
make any profit by our means. Not only half the old subsidy, but the second twenty-
five per cent. is retained upon the exportation of all French goods.

By the fourth of the rules annexed to the old subsidy, the drawback allowed upon
the exportation of all wines amounted to a great deal more than half the duties which
were at that time paid upon their importation; and it seems at that time to have been
the object of the legislature to give somewhat more than ordinary encouragement
to the carrying trade in wine. Several of the other duties, too which were imposed
either at the same time or subsequent to the old subsidy, what is called the additional
duty, the new subsidy, the one-third and two-thirds subsidies, the impost 1692, the
tonnage on wine, were allowed to be wholly drawn back upon exportation. All those
duties, however, except the additional duty and impost 1692, being paid down in ready
money upon importation, the interest of so large a sum occasioned an expense, which
made it unreasonable to expect any profitable carrying trade in this article. Only a part,
therefore of the duty called the impost on wine, and no part of the twenty-five pounds
the ton upon French wines, or of the duties imposed in 1745, in 1763, and in 1778,
were allowed to be drawn back upon exportation. The two imposts of five per cent.
imposed in 1779 and 1781, upon all the former duties of customs, being allowed to be

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wholly drawn back upon the exportation of all other goods, were likewise allowed to be
drawn back upon that of wine. The last duty that has been particularly imposed upon
wine, that of 1780, is allowed to be wholly drawn back; an indulgence which, when so
many heavy duties are retained, most probably could never occasion the exportation
of a single ton of wine. These rules took place with regard to all places of lawful
exportation, except the British colonies in America.

The 15th Charles II, chap. 7, called an act for the encouragement of trade, had
given Great Britain the monopoly of supplying the colonies with all the commodities
of the growth or manufacture of Europe, and consequently with wines. In a country
of so extensive a coast as our North American and West Indian colonies, where our
authority was always so very slender, and where the inhabitants were allowed to carry
out in their own ships their non-enumerated commodities, at first to all parts of
Europe, and afterwards to all parts of Europe south of Cape Finisterre, it is not very
probable that this monopoly could ever be much respected; and they probably at all
times found means of bringing back some cargo from the countries to which they
were allowed to carry out one. They seem, however, to have found some difficulty in
importing European wines from the places of their growth; and they could not well
import them from Great Britain, where they were loaded with many heavy duties, of
which a considerable part was not drawn back upon exportation. Madeira wine, not
being an European commodity, could be imported directly into America and the West
Indies, countries which, in all their non-enumerated commodities, enjoyed a free trade
to the island of Madeira. These circumstances had probably introduced that general
taste for Madeira wine, which our officers found established in all our colonies at the
commencement of the war which began in 1755, and which they brought back with
them to the mother country, where that wine had not been much in fashion before.
Upon the conclusion of that war, in 1763 (by the 4th Geo. HI, chap. 15, sect. 12), all
the duties except £3, 10s. were allowed to be drawn back upon the exportation to the
colonies of all wines, except French wines, to the commerce and consumption of
which national prejudice would allow no sort of encouragement. The period between
the granting of this indulgence and the revolt of our North American colonies, was
probably too short to admit of any considerable change in the customs of those
countries.

The same act which, in the drawbacks upon all wines, except French wines, thus
favoured the colonies so much more than other countries, in those upon the greater part
of other commodities, favoured them much less. Upon the exportation of the greater
part of commodities to other countries, half the old subsidy was drawn back. But this
law enacted, that no part of that duty should be drawn back upon the exportation to
the colonies of any commodities of the growth or manufacture either of Europe or
the East Indies, except wines, white calicoes, and muslins.

Drawbacks were, perhaps, originally granted for the encouragement of the carrying
trade, which, as the freight of the ship is frequently paid by foreigners in money, was
supposed to be peculiarly fitted for bringing gold and silver into the country. But

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though the carrying trade certainly deserves no peculiar encouragement, though the
motive of the institution was, perhaps, abundantly foolish, the institution itself seems
reasonable enough. Such drawbacks cannot force into this trade a greater share of the
capital of the country than what would have gone to it of its own accord, had there
been no duties upon importation; they only prevent its being excluded altogether by
those duties. The carrying trade, though it deserves no preference, ought not to be
precluded, but to be left free, like all other trades. It is a necessary resource to those
capitals which cannot find employment, either in the agriculture or in the manufactures
of the country, either in its home trade, or in its foreign trade of consumption.

The revenue of the customs, instead of suffering, profits from such drawbacks,
by that part of the duty which is retained. If the whole duties had been retained,
the foreign goods upon which they are paid could seldom have been exported, nor
consequently imported, for want of a market. The duties, therefore, of which a part is
retained, would never have been paid.

These reasons seem sufficiently to justify drawbacks, and would justify them,
though the whole duties, whether upon the produce of domestic industry or upon
foreign goods, were always drawn back upon exportation. The revenue of excise
would, in this case indeed, suffer a little, and that of the customs a good deal more; but
the natural balance of industry, the natural division and distribution of labour, which
is always more or less disturbed by such duties, would be more nearly re-established by
such a regulation.

These reasons, however, will justify drawbacks only upon exporting goods to those
countries which are altogether foreign and independent, not to those in which our
merchants and manufacturers enjoy a monopoly. A drawback, for example, upon the
exportation of European goods to our American colonies, will not always occasion
a greater exportation than what would have taken place without it. By means of the
monopoly which our merchants and manufacturers enjoy there, the same quantity
might frequently, perhaps, be sent thither, though the whole duties were retained. The
drawback, therefore, may frequently be pure loss to the revenue of excise and customs,
without altering the state of the trade, or rendering it in any respect more extensive.
How far such drawbacks can be justified as a proper encouragement to the industry of
our colonies, or how far it is advantageous to the mother country that they should be
exempted from taxes which are paid by all the rest of their fellow-subjects, will appear
hereafter, when I come to treat of colonies.

Drawbacks, however, it must always be understood, are useful only in those cases
in which the goods, for the exportation of which they are given, are really exported
to some foreign country, and not clandestinely re-imported into our own. That some
drawbacks, particularly those upon tobacco, have frequently been abused in this manner,
and have given occasion to many frauds, equally hurtful both to the revenue and to the
fair trader, is well known.

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ADAM SMITH

_ CHAPTER V.
OF BOUNTIES.

bese upon exportation are, in Great Britain, frequently petitioned for, and
sometimes granted, to the produce of particular branches of domestic industry.
By means of them, our merchants and manufacturers, it is pretended, will be enabled
to sell their goods as cheap or cheapet than their rivals in the foreign market. A greater
quantity, it is said, will thus be exported, and the balance of trade consequently turned
more in favour of our own country. We cannot give our workmen a monopoly in the
foreign, as we have done in the home market. We cannot force foreigners to buy their
goods, as we have done our own countrymen. The next best expedient, it has been
thought, therefore, is to pay them for buying, It is in this manner that the mercantile
system proposes to enrich the whole country, and to put money into all our pockets, by
means of the balance of trade.

Bounties, it is allowed, ought to be given to those branches of trade only which
cannot be carried on without them. But every branch of trade in which the merchant
can sell his goods for a price which replaces to him, with the ordinary profits of stock,
the whole capital employed in preparing and sending them to market, can be carried
on without a bounty. Every such branch is evidently upon a level with all the other
branches of trade which are carried on without bounties, and cannot, therefore, require
one more than they. Those trades only require bounties, in which the merchant is
obliged to sell his goods for a price which does not replace to him his capital, together
with the ordinary profit, or in which he is obliged to sell them for less than it really cost
him to send them to market. The bounty is given in order to make up this loss, and
to encourage him to continue, or, perhaps, to begin a trade, of which the expense is
supposed to be greater than the returns, of which every operation eats up a part of the
capital employed in it, and which is of such a nature, that if all other trades resembled
it, there would soon be no capital left in the country.

The trades, it is to be observed, which are carried on by means of bounties, are
the only ones which can be carried on between two nations for any considerable time
together, in such a manner as that one of them shall alway’s and regularly lose, or sell
its goods for less than it really cost to send them to market. But if the bounty did not
repay to the merchant what he would otherwise lose upon the price of his goods, his
own interest would soon oblige him to employ his stock in another way, or to find out
a trade in which the price of the goods would replace to him, with the ordinary profit,
the capital employed in sending them to market. The effect of bounties, like that of

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all the other expedients of the mercantile system, can only be to force the trade of a
country into a channel much less advantageous than that in which it would naturally
run of its own accord.

The ingenious and well-informed author of the Tracts upon the Corn Trade
has shown very clearly, that since the bounty upon the exportation of corn was first
established, the price of the corn exported, valued moderately enough, has exceeded
that of the corn imported, valued very high, by a much greater sum than the amount
of the whole bounties which have been paid during that period. This, he imagines,
upon the true principles of the mercantile system, is a clear proof that this forced
corn trade is beneficial to the nation, the value of the exportation exceeding that of
the importation by a much greater sum than the whole extraordinary expense which
the public has been at in order to get it exported. He does not consider that this
extraordinary expense, or the bounty, is the smallest part of the expense which the
exportation of corn really costs the society. The capital which the farmer employed in
raising it must likewise be taken into the account. Unless the price of the corn, when
sold in the foreign markets, replaces not only the bounty, but this capital, together with
the ordinary profits of stock, the society is a loser by the difference, or the national stock
is so much diminished. But the very reason for which it has been thought necessary to
grant a bounty, is the supposed insufficiency of the price to do this.

The average price of corn, it has been said, has fallen considerably since the
establishment of the bounty. That the average price of corn began to fall somewhat
towards the end of the last century, and has continued to do so during the course of
the sixty-four first years of the present, I have already endeavoured to show. But this
event, supposing it to be real, as I believe it to be, must have happened in spite of the
bounty, and cannot possibly have happened in consequence of it. It has happened in
France, as well as in England, though in France there was not only no bounty, but, till
1764, the exportation of corn was subjected to a general prohibition. This gradual fall
in the average price of grain, it is probable, therefore, is ultimately owing neither to the
one regulation nor to the other, but to that gradual and insensible rise in the real value
of silver, which, in the first book of this discourse, I have endeavoured to show, has
taken place in the general market of Europe during the course of the present century.
It seems to be altogether impossible that the bounty could ever contribute to lower the
price of grain.

In years of plenty, it has already been observed, the bounty, by occasioning an
extraordinary exportation, necessarily keeps up the price of corn in the home market
above what it would naturally fall to. To do so was the avowed purpose of the
institution. In years of scarcity, though the bounty is frequently suspended, yet the
great exportation which it occasions in years of plenty, must frequently hinder, more
or less, the plenty of one year from relieving the scarcity of another. Both in years
of plenty and in years of scarcity, therefore, the bounty necessarily tends to raise the
money price of corn somewhat higher than it otherwise would be in the home market.

That in the actual state of tillage the bounty must necessarily have this tendency,

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will not, I apprehend, be disputed by any reasonable person. But it has been thought
by many people, that it tends to encourage tillage, and that in two different ways;
first, by opening a more extensive foreign market to the corn of the farmer, it tends,
they imagine, to increase the demand for, and consequently the production of, that
commodity; and, secondly by securing to him a better price than he could otherwise
expect in the actual state of tillage, it tends, they suppose, to encourage tillage. This
double encouragement must they imagine, in a long period of years, occasion such an
increase in the production of corn, as may lower its price in the home market, much
more than the bounty can raise it in the actual state which tillage may, at the end of that
period, happen to be in.

I answer, that whatever extension of the foreign market can be occasioned by the
bounty must, in every particular year, be altogether at the expense of the home market;
as every bushel of corn, which is exported by means of the bounty, and which would
not have been exported without the bounty, would have remained in the home market
to increase the consumption, and to lower the price of that commodity. The corn
bounty, it is to be observed, as well as every other bounty upon exportation, imposes
two different taxes upon the people; first, the tax which they are obliged to contribute,
in order to pay the bounty; and, secondly, the tax which arises from the advanced price
of the commodity in the home market, and which, as the whole body of the people
are purchasers of corn, must, in this particular commodity, be paid by the whole body
of the people. In this particular commodity, therefore, this second tax is by much the
heaviest of the two. Let us suppose that, taking one year with another, the bounty of
5s. upon the exportation of the quarter of wheat raises the price of that commodity in
the home market only 6d. the bushel, or 4s. the quarter higher than it otherwise would
have been in the actual state of the crop. Even upon this very moderate supposition,
the great body of the people, over and above contributing the tax which pays the
bounty of 5s. upon every quarter of wheat exported, must pay another of 4s. upon
every quarter which they themselves consume. But according to the very well informed
author of the Tracts upon the Corn Trade, the average proportion of the corn exported
to that consumed at home, is not more than that of one to thirty-one. For every 5s.
therefore, which they contribute to the payment of the first tax, they must contribute
£6:4s. to the payment of the second. So very heavy a tax upon the first necessary of
life-must either reduce the subsistence of the labouring poor, or it must occasion some
augmentation in their pecuniary wages, proportionable to that in the pecuniary price
of their subsistence. So far as it operates in the one way, it must reduce the ability
of the labouring poor to educate and bring up their children, and must, so far, tend
to restrain the population of the country. So far as it operate’s in the other, it must
reduce the ability of the employers of the poor, to employ so great a number as they
otherwise might do, and must so far tend to restrain the industry of the country. The
extraordinary exportation of corn, therefore occasioned by the bounty, not only in
every particular year diminishes the home, just as much as it extends the foreign market
and consumption, but, by restraining the population and industry of the country, its

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final tendency is to stint and restrain the gradual extension of the home market; and
thereby, in the long-run, rather to diminish than to augment the whole market and
consumption of corn.

This enhancement of the money price of corn, however, it has been thought, by
rendering that commodity more profitable to the farmer, must necessarily encourage
its production.

I answer, that this might be the case, if the effect of the bounty was to raise the
real price of corn, or to enable the farmer, with an equal quantity of it, to maintain a
greater number of labourers in the same manner, whether liberal, moderate, or scanty,
than other labourers are commonly maintained in his neighbourhood. But neither the
bounty, it is evident, nor any other human institution, can have any such effect. It is
not the real, but the nominal price of corn, which can in any considerable degree be
affected by the bounty. And though the tax, which that institution imposes upon the
whole body of the people, may be very burdensome to those who pay it, it is of very
little advantage to those who receive it.

The real effect of the bounty is not so much to raise the real value of corn, as
to degrade the real value of silver; or to make an equal quantity of it exchange for a
smaller quantity, not only of corn, but of all other home made commodities; for the
money price of corn regulates that of all other home made commodities.

It regulates the money price of labour, which must always be such as to enable
the labourer to purchase a quantity of corn sufficient to maintain him and his family,
either in the liberal, moderate, or scanty manner, in which the advancing, stationary, or
declining, circumstances of the society, oblige his employers to maintain him.

It regulates the money price of all the other parts of the rude produce of land,
which, in every period of improvement, must bear a certain proportion to that of corn,
though this proportion is different in different periods. It regulates, for example, the
money price of grass and hay, of butcher’s meat, of horses, and the maintenance of
horses, of land carriage consequently, or of the greater part of the inland commerce
of the country.

By regulating the money price of all the other parts of the rude produce of land,
it regulates that of the materials of almost all manufactures; by regulating the money
price of labour, it regulates that of manufacturing art and industry; and by regulating
both, it regulates that of the complete manufacture. The money price of labour, and
of every thing that is the produce, either of land or labour, must necessarily either rise
or fall in proportion to the money price of corn.

Though in consequence of the bounty, therefore, the farmer should be enabled to
sell his corn for 4s. the bushel, instead of 3s:6d. and to pay his landlord a money rent
proportionable to this rise in the money price of his produce; yet if, in consequence of
this rise in the price of corn, 4s. will purchase no more home made goods of any other
kind than 3s. 6d. would have done before, neither the circumstances of the farmer, nor
those of the landlord, will be much mended by this change. The farmer will not be
able to cultivate much better; the landlord will not be able to live much better. In the

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ADAM SMITH

purchase of foreign commodities, this enhancement in the price of corn may give them
some little advantage. In that of home made commodities, it can give them none at all.
And almost the whole expense of the farmer, and the far greater part even of that of
the landlord, is in home made commodities.

That degradation in the value of silver, which is the effect of the fertility of the
mines, and which operates equally, or very nearly equally, through the greater part of
the commercial world, is a matter of very little consequence to any particular country.
The consequent rise of all money prices, though it does not make those who receive
them really richer, does not make them really poorer. A service of plate becomes really
cheaper, and every thing else remains precisely of the same real value as before.

But that degradation in the value of silver, which, being the effect either of the
peculiar situation or of the political institutions of a particular country, takes place
only in that country, is a matter of very great consequence, which, far from tending
to make anybody really richer, tends to make every body really poorer. The rise in the
money price of all commodities, which is in this case peculiar to that country, tends
to discourage more or less every sort of industry which is carried on within it, and to
enable foreign nations, by furnishing almost all sorts of goods for a smaller quantity
of silver than its own workmen can afford to do, to undersell them, not only in the
foreign, but even in the home market.

It is the peculiar situation of Spain and Portugal, as proprietors of the mines, to be
the distributers of gold and silver to all the other countries of Europe. Those metals
ought naturally, therefore, to be somewhat cheaper in Spain and Portugal than in any
other part of Europe. The difference, however, should be no more than the amount of
the freight and insurance; and, on account of the great value and small bulk of those
metals, their freight is no great matter, and their insurance is the same as that of any
other goods of equal value. Spain and Portugal, therefore, could suffer very little from
their peculiar situation, if they did not aggravate its disadvantages by their political
institutions.

Spain by taxing, and Portugal by prohibiting, the exportation of gold and silver,
load that exportation with the expense of smuggling, and raise the value of those
metals in other countries so much mote above what it is in their own, by the whole
amount of this expense. When you dam up a stream of water, as soon as the dam
is full, as much water must run over the dam-head as if there was no dam at all.
The prohibition of exportation cannot detain a greater quantity of gold and silver
in Spain and Portugal, than what they can afford to employ, than what the annual
produce of their land and labour will allow them to employ, in coin, plate, gilding,
and other ornaments of gold and silver. When they have got this quantity, the dam
is full, and the whole stream which flows in afterwards must run over. The annual
exportation of gold and silver from Spain and Portugal, accordingly, is, by all accounts,
notwithstanding these restraints, very near equal to the whole annual importation. As
the water, however, must always be deeper behind the dam-head than before it, so the
quantity of gold and silver which these restraints detain in Spain and Portugal, must,

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THE WEALTH OF NATIONS

in proportion to the annual produce of their land and labour, be greater than what
is to be found in other countries. The higher and stronger the dam-head, the greater
must be the difference in the depth of water behind and before it. The higher the tax,
the higher the penalties with which the prohibition is guarded, the more vigilant and
severe the police which looks after the execution of the law, the greater must be the
difference in the proportion of gold and silver to the annual produce of the land and
labour of Spain and Portugal, and to that of other countries. It is said, accordingly, to
be very considerable, and that you frequently find there a profusion of plate in houses,
where there is nothing else which would in other countries be thought suitable or
correspondent to this sort of magnificence. The cheapness of gold and silver, or, what
is the same thing, the dearness of all commodities, which is the necessary effect of this
redundancy of the precious metals, discourages both the agriculture and manufactures
of Spain and Portugal, and enables foreign nations to supply them with many sorts
of rude, and with almost all sorts of manufactured produce, for a smaller quantity of
gold and silver than what they themselves can either raise or make them for at home.
The tax and prohibition operate in two different ways. They not only lower very much
the value of the precious metals in Spain and Portugal, but by detaining there a certain
quantity of those metals which would otherwise flow over other countries, they keep
up their value in those other countries somewhat above what it otherwise would be,
and thereby give those countries a double advantage in their commerce with Spain and
Portugal. Open the flood-gates, and there will presently be less water above, and more
below the dam-head, and it will soon come to a level in both places. Remove the tax
and the prohibition, and as the quantity of gold and silver will diminish considerably
in Spain and Portugal, so it will increase somewhat in other countries; and the value
of those metals, their proportion to the annual produce of land and labour, will soon
come to a level, or very near to a level, in all. The loss which Spain and Portugal could
sustain by this exportation of their gold and silver, would be altogether nominal and
imaginary. The nominal value of their goods, and of the annual produce of their land
and labour, would fall, and would be expressed or represented by a smaller quantity
of silver than before; but their real value would be the same as before, and would be
sufficient to maintain, command, and employ the same quantity of labour. As the
nominal value of their goods would fall, the real value of what remained of their gold
and silver would rise, and a smaller quantity of those metals would answer all the same
purposes of commerce and circulation which had employed a greater quantity before.
The gold and silver which would go abroad would not go abroad for nothing, but
would bring back an equal value of goods of some kind or other. Those goods, too,
would not be all matters of mere luxury and expense, to be consumed by idle people,
who produce nothing in return for their consumption. As the real wealth and revenue
of idle people would not be augmented by this extraordinary exportation of gold and
silver, so neither would their consumption be much augmented by it. Those goods
would probably, the greater part of them, and certainly some part of them, consist in
materials, tools, and provisions, for the employment and maintenance of industrious

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ADAM SMITH

people, who would reproduce, with a profit, the full value of their consumption. A part
of the dead stock of the society would thus be turned into active stock, and would put
into motion a greater quantity of industry than had been employed before. The annual
produce of their land and labour would immediately be augmented a little, and in a few
years would probably be augmented a great deal; their industry being thus relieved from
one of the most oppressive burdens which it at present labours under.

The bounty upon the exportation of corn necessarily operates exactly in the same
way as this absurd policy of Spain and Portugal. Whatever be the actual state of tillage,
it renders our corn somewhat dearer in the home market than it otherwise would be
in that state, and somewhat cheaper in the foreign; and as the average money price of
corn regulates, more or less, that of all other commodities, it lowers the value of silver
considerably in the one, and tends to raise it a little in the other. It enables foreigners, the
Dutch in particular, not only to eat our corn cheaper than they otherwise could do, but
sometimes to eat it cheaper than even our own people can do upon the same occasions;
as we are assured by an excellent authority, that of Sir Matthew Decker. It hinders our
own workmen from furnishing their goods for so small a quantity of silver as they
otherwise might do, and enables the Dutch to furnish theirs for a smaller. It tends
to render our manufactures somewhat dearer in every market, and theirs somewhat
cheaper, than they otherwise would be, and consequently to give their industry a double
advantage over our own.

The bounty, as it raises in the home market, not so much the real, as the nominal
price of our corn; as it augments, not the quantity of labour which a certain quantity
of corn can maintain and employ, but only the quantity of silver which it will exchange
for; it discourages our manufactures, without rendering any considerable service, either
to our farmers or country gentlemen. It puts, indeed, a little more money into the
pockets of both, and it will perhaps be somewhat difficult to persuade the greater part
of them that this is not rendering them a very considerable service. But if this money
sinks in its value, in the quantity of labour, provisions, and home-made commodities
of all different kinds which it is capable of purchasing, as much as it rises in its quantity,
the service will be little more than nominal and imaginary.

There is, perhaps, but one set of men in the whole commonwealth to whom the
bounty either was or could be essentially serviceable. These were the corn merchants, the
exporters and importers of corn. In years of plenty, the bounty necessarily occasioned
a greater exportation than would otherwise have taken place; and by hindering the
plenty of the one year from relieving the scarcity of another, it occasioned in years of
scarcity a greater importation than would otherwise have been necessary. It increased the
business of the corn merchant in both; and in the years of scarcity, it not only enabled
him to import a greater quantity, but to sell it for a better price, and consequently with
a greater profit, than he could otherwise have made, if the plenty of one year had not
been more or less hindered from relieving the scarcity of another. It is in this set of
men, accordingly, that I have observed the greatest zeal for the continuance or renewal

of the bounty.
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THE WEALTH OF NATIONS

Our country gentlemen, when they imposed the high duties upon the exportation
of foreign corn, which in times of moderate plenty amount to a prohibition, and when
they established the bounty, seem to have imitated the conduct of our manufacturers.
By the one institution, they secured to themselves the monopoly of the home market,
and by the other they endeavoured to prevent that market from ever being overstocked
with their commodity. By both they endeavoured to raise its real value, in the same
manner as our manufacturers had, by the like institutions, raised the real value of many
different sorts of manufactured goods. They did not, perhaps, attend to the great and
essential difference which nature has established between corn and almost every other
sort of goods. When, either by the monopoly of the home market, or by a bounty
upon exportation, you enable our woollen or linen manufacturers to sell their goods
for somewhat a better price than they otherwise could get for them, you raise, not
only the nominal, but the real price of those goods; you render them equivalent to a
greater quantity of labour and subsistence; you increase not only the nominal, but the
real profit, the real wealth and revenue of those manufacturers; and you enable them,
either to live better themselves, or to employ a greater quantity of labour in those
particular manufactures. You really encourage those manufactures, and direct towards
them a greater quantity of the industry of the country than what would properly go
to them of its own accord. But when, by the like institutions, you raise the nominal or
money price of corn, you do not raise its real value; you do not increase the real wealth,
the real revenue, either of our farmers or country gentlemen; you do not encourage
the growth of corn, because you do not enable them to maintain and employ more
labourers in raising it. The nature of things has stamped upon corn a real value, which
cannot be altered by merely altering its money price. No bounty upon exportation, no
monopoly of the home market, can raise that value. The freest competition cannot
lower it, Through the world in general, that value is equal to the quantity of labour
which it can maintain, and in every particular place it is equal to the quantity of labour
which it can maintain in the way, whether liberal, moderate, or scanty, in which labour
is commonly maintained in that place. Woollen or linen cloth are not the regulating
commodities by which the real value of all other commodities must be finally measured
and determined; corn is. The real value of every other commodity is finally measured
and determined by the proportion which its average money price bears to the average
money price of corn. The real value of corn does not vary with those variations in its
average money price, which sometimes occur from one century to another; it is the real
value of silver which varies with them.

Bounties upon the exportation of any homemade commodity are liable, first,
to that general objection which may be made to all the different expedients of the
mercantile system; the objection of forcing some part of the industry of the country
into a channel less advantageous than that in which it would run of its own accord;
and, secondly, to the particular objection of forcing it not only into a channel that
is less advantageous, but into one that is actually disadvantageous; the trade which
cannot be carried on but by means of a bounty being necessarily a losing trade. The

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ADAM SMITH

bounty upon the exportation of corn is liable to this further objection, that it can in
no respect promote the raising of that particular commodity of which it was meant
to encourage the production. When our country gentlemen, therefore, demanded
the establishment of the bounty, though they acted in imitation of our merchants
and manufacturers, they did not act with that complete comprehension of their own
interest, which commonly directs the conduct of those two other orders of people.
They loaded the public revenue with a very considerable expense: they imposed a very
heavy tax upon the whole body of the people; but they did not, in any sensible degtee,
increase the real value of their own commodity; and by lowering somewhat the real
value of silver, they discouraged, in some degree, the general industry of the country,
and, instead of advancing, retarded more or less the improvement of their own lands,
which necessarily depend upon the general industry of the country.

To encourage the production of any commodity, a bounty upon production, one
should imagine, would have a more direct operation than one upon exportation. It
would, besides, impose only one tax upon the people, that which they must contribute
in order to pay the bounty. Instead of raising, it would tend to lower the price of
the commodity in the home market; and thereby, instead of imposing a second tax
upon the people, it might, at least in part, repay them for what they had contributed
to the first. Bounties upon production, however, have been very rarely granted. The
prejudices established by the commercial system have taught us to believe, that national
wealth arises more immediately from exportation than from production. It has been
more favoured, accordingly, as the more immediate means of bringing money into the
country. Bounties upon production, it has been said too, have been found by experience
mote liable to frauds than those upon exportation. How far this is true, I know not.
That bounties upon exportation have been abused, to many fraudulent purposes, is
very well known. But it is not the interest of merchants and manufacturers, the great
inventors of all these expedients, that the home market should be overstocked with
their goods; an event which a bounty upon production might sometimes occasion.
A bounty upon exportation, by enabling them to send abroad their surplus part, and
to keep up the price of what remains in the home market, effectually prevents this.
Of all the expedients of the mercantile system, accordingly, it is the one of which
they are the fondest. I have known the different undertakers of some particular works
agree privately among themselves to give a bounty out of their own pockets upon the
exportation of a certain proportion of the goods which they dealt in. This expedient
succeeded so well, that it more than doubled the price of their goods in the home
market, notwithstanding a very considerable increase in the produce. The operation
of the bounty upon corn must have been wonderfully different, if it has lowered the
money price of that commodity.

Something like a bounty upon production, however, has been granted upon some
particular occasions. The tonnage bounties given to the white herring and whale
fisheries may, perhaps, be considered as somewhat of this nature. They tend directly, it
may be supposed, to render the goods cheaper in the home market than they otherwise

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THE WEALTH OF NATIONS

would be. In other respects, their effects, it must be acknowledged, are the same as
those of bounties upon exportation. By means of them, a part of the capital of the
country is employed in bringing goods to market, of which the price does not repay the
cost, together with the ordinary profits of stock.

But though the tonnage bounties to those fisheries do not contribute to the
opulence of the nation, it may, perhaps, be thought that they contribute to its defence,
by augmenting the number of its sailors and shipping. This, it may be alleged, may
sometimes be done by means of such bounties, at a much smaller expense than by
keeping up a great standing navy, if I may use such an expression, in the same way as
a standing army.

Notwithstanding these favourable allegations, however, the following considerations
dispose me to believe, that in granting at least one of these bounties, the legislature has
been very grossly imposed upon:

First, The herring-buss bounty seems too large.

From the commencement of the winter fishing 1771, to the end of the winter
fishing 1781, the tonnage bounty upon the herring-buss fishery has been at thirty
shillings the ton. During these eleven years, the whole number of barrels caught by
the herring-buss fishery of Scotland amounted to 378,347. The herrings caught and
cured at sea are called sea-sticks. In order to render them what are called merchantable
herrings, it is necessary to repack them with an additional quantity of salt; and in
this case, it is reckoned, that three barrels of sea-sticks are usually repacked into two
barrels of merchantable herrings. The number of barrels of merchantable herrings,
therefore, caught during these eleven years, will amount only, according to this account,
to 252,231'/. During these eleven years, the tonnage bounties paid amounted to
£155,463:11s. or 88:2'/4d. upon every barrel of sea-sticks, and to 12s:3°/«d. upon every
barrel of merchantable herrings.

The salt with which these herrings are cured is sometimes Scotch, and sometimes
foreign salt; both which are delivered, free of all excise duty, to the fish-curers. The
excise duty upon Scotch salt is at present 1s:6d., that upon foreign salt 10s. the bushel.
A barrel of herrings is supposed to require about one bushel and one-fourth of
a bushel foreign salt. Two bushels are the supposed average of Scotch salt. If the
herrings are entered for exportation, no part of this duty is paid up; if entered for home
consumption, whether the herrings were cured with foreign or with Scotch salt, only
one shilling the barrel is paid up. It was the old Scotch duty upon a bushel of salt, the
quantity which, at a low estimation, had been supposed necessary for curing a barrel of
herrings. In Scotland, foreign salt is very little used for any other purpose but the curing
of fish. But from the 5th April 1771 to the 5th April 1782, the quantity of foreign salt
imported amounted to 936,974 bushels, at eighty-four pounds the bushel; the quantity
of Scotch salt delivered from the works to the fish-curers, to no more than 168,226,
at fifty-six pounds the bushel only. It would appear, therefore, that it is principally
foreign salt that is used in the fisheries. Upon every barrel of herrings exported, there
is, besides, a bounty of 2s:8d. and more than two-thirds of the buss-caught herrings are

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_ ADAM SMITH

exported. Put all these things together, and you will find that, during these eleven years,
every barrel of buss-caught herrings, cured with Scotch salt, when exported, has cost
government 17s:11°/4d.; and, when entered for home consumption, 14s:3°/d.; and that
evety barrel cured with foreign salt, when exported, has cost government {£1:7:5%d.;
and, when entered for home consumption, £1:3:99/d. The price of a barrel of good
merchantable herrings runs from seventeen and eighteen to four and five-and-twenty
shillings; about a guinea at an average. {See the accounts at the end of this Book.}

Secondly, The bounty to the white-herring fishery is a tonnage bounty, and is
proportioned to the burden of the ship, not to her diligence or success in the fishery;
and it has, I am afraid, been too common for the vessels to fit out for the sole purpose
of catching, not the fish but the bounty. In the year 1759, when the bounty was at fifty
shillings the ton, the whole buss fishery of Scotland brought in only four barrels of
sea-sticks. In that year, each barrel of sea-sticks cost government, in bounties alone,
£113:15s.; each barrel of merchantable herrings £159:7:6.

Thirdly, The mode of fishing, for which this tonnage bounty in the white herring
fishery has been given (by busses or decked vessels from twenty to eighty tons burden
), seems not so well adapted to the situation of Scotland, as to that of Holland, from
the practice of which country it appears to have been borrowed. Holland lies at a
great distance from the seas to which herrings are known principally to resort, and
can, therefore, carry on that fishery only in decked vessels, which can carry water and
provisions sufficient for a voyage to a distant sea; but the Hebrides, or Western Islands,
the islands of Shetland, and the northern and north-western coasts of Scotland, the
countries in whose neighbourhood the herring fishery is principally carried on, are
everywhere intersected by arms of the sea, which run up a considerable way into the
land, and which, in the language of the country, are called sea-lochs. It is to these sea-
lochs that the herrings principally resort during the seasons in which they visit these
seas; for the visits of this, and, | am assured, of many other sorts of fish, are not
quite regular and constant. A boat-fishery, therefore, seems to be the mode of fishing
best adapted to the peculiar situation of Scotland, the fishers carrying the herrings on
shore as fast as they are taken, to be either cured or consumed fresh. But the great
encouragement which a bounty of 30s. the ton gives to the buss-fishery, is necessarily a
discouragement to the boat-fishery, which, having no such bounty, cannot bring its cured
fish to market upon the same terms as the buss-fishery. The boat-fishery; accordingly,
which, before the establishment of the buss-bounty, was very considerable, and 1s said
to have employed a number of seamen, not inferior to what the buss-fishery employs
at present, is now gone almost entirely to decay. Of the former extent, however, of this
now ruined and abandoned fishery, I must acknowledge that I cannot pretend to speak
with much precision. As no bounty was-paid upon the outfit of the boat-fishery, no
account was taken of it by the officers of the customs or salt duties.

Fourthly, In many parts of Scotland, during certain seasons of the year, herrings
make no inconsiderable part of the food of the common people. A bounty which
tended to lower their price in the home market, might contribute a good deal to the

S11

THE WEALTH OF NATIONS

relief of a great number of our fellow-subjects, whose circumstances are by no means
affluent. But the herring-bus bounty contributes to no such good purpose. It has ruined
the boat fishery, which is by far the best adapted for the supply of the home market;
and the additional bounty of 2s:8d. the barrel upon exportation, carries the greater
part, more than two-thirds, of the produce of the buss-fishery abroad. Between thirty
and forty years ago, before the establishment of the buss-bounty, 16s. the barrel, I have
been assured, was the common price of white herrings. Between ten and fifteen years
ago, before the boat-fishery was entirely ruined, the price was said to have run from
seventeen to twenty shillings the barrel. For these last five years, it has, at an average,
been at twenty-five shillings the barrel. This high price, however, may have been owing
to the real scarcity of the herrings upon the coast of Scotland. I must observe, too,
that the cask or barrel, which is usually sold with the herrings, and of which the price
is included in all the foregoing prices, has, since the commencement of the American
war, risen to about double its former price, or from about 3s. to about 6s. I must
likewise observe, that the accounts I have received of the prices of former times, have
been by no means quite uniform and consistent, and an old man of great accuracy and
experience has assured me, that, more than fifty years ago, a guinea was the usual price
of a barrel of good merchantable herrings; and this, I imagine, may still be looked upon
as the average price. All accounts, however, I think, agree that the price has not been
lowered in the home market in consequence of the buss-bounty.

When the undertakers of fisheries, after such liberal bounties have been bestowed
upon them, continue to sell their commodity at the same, or even at a higher price
than they were accustomed to do before, it might be expected that their profits should
be very great; and it is not improbable that those of some individuals may have been
so. In general, however, I have every reason to believe they have been quite otherwise.
The usual effect of such bounties is, to encourage rash undertakers to adventure in a
business which they do not understand; and what they lose by their own negligence
and ignorance, more than compensates all that they can gain by the utmost liberality
of government. In 1750, by the same act which first gave the bounty of 30s. the ton
for the encouragement of the white herring fishery (the 23d Geo. II. chap. 24), a
joint stock company was erected, with a capital of £500,000, to which the subscribers
(over and above all other encouragements, the tonnage bounty just now mentioned,
the exportation bounty of 2s:8d. the barrel, the delivery of both British and foreign
salt duty free) were, during the space of fourteen years, for every hundred pounds
which they subscribed and paid into the stock of the society, entitled to three pounds
a-year, to be paid by the receiver-general of the customs in equal half-yearly payments.
Besides this great company, the residence of whose governor and directors was to be
in London, it was declared lawful to erect different fishing chambers in all the different
out-ports of the kingdom, provided a sum not less than £10,000 was subscribed into
the capital of each, to be managed at its own risk, and for its own profit and loss. The
same annuity, and the same encouragements of all kinds, were given to the trade of
those inferior chambers as to that of the great company. The subscription of the great

ADAM SMITH

company was soon filled up, and several different fishing chambers were erected in the
different out-ports of the kingdom. In spite of all these encouragements, almost all
those different companies, both great and small, lost either the whole or the greater
part of their capitals; scarce a vestige now remains of any of them, and the white-
herring fishery is now entirely, or almost entirely, carried on by private adventurers.

If any particular manufacture was necessary, indeed, for the defence of the society, it
might not always be prudent to depend upon our neighbours for the supply; and if such
manufacture could not otherwise be supported at home, it might not be unreasonable
that all the other branches of industry should be taxed in order to support it. The
bounties upon the exportation of British made sail-cloth, and British made gunpowder,
may, perhaps, both be vindicated upon this principle.

But though it can very seldom be reasonable to tax the industry of the great body
of the people, in order to support that of some particular class of manufacturers; yet,
in the wantonness of great prosperity, when the public enjoys a greater revenue than
it knows well what to do with, to give such bounties to favourite manufactures, may,
perhaps, be as natural as to incur any other idle expense. In public, as well as in private
expenses, great wealth, may, perhaps, frequently be admitted as an apology for great
folly. But there must surely be something more than ordinary absurdity in continuing
such profusion in times of general difficulty and distress.

What is called a bounty, is sometimes no more than a drawback, and, consequently, is
not liable to the same objections as what is properly a bounty. The bounty, for example,
upon refined sugar exported, may be considered as a drawback of the duties upon the
brown and Muscovado sugars, from which it is made; the bounty upon wrought silk
exported, a drawback of the duties upon raw and thrown silk imported; the bounty
upon gunpowder exported, a drawback of the duties upon brimstone and saltpetre
imported. In the language of the customs, those allowances only are called drawbacks
which are given upon goods exported in the same form in which they are imported.
When that form has been so altered by manufacture of any kind as to come under a
new denomination, they are called bounties.

Premiums given by the public to artists and manufacturers, who excel in their
particular occupations, are not liable to the same objections as bounties. By encouraging
extraordinary dexterity and ingenuity, they serve to keep up the emulation of the
workmen actually employed in those respective occupations, and are not considerable
enough to turn towards any one of them a greater share of the capital of the country
than what would go to it of its own accord. Their tendency is not to overturn the
natural balance of employments, but to render the work which is done in each as
perfect and complete as possible. The expense of premiums, besides, is very trifling,
that of bounties very great. The bounty upon corn alone has sometimes cost the public,
in one year, more than £300,000.

Bounties are sometimes called premiums, as drawbacks are sometimes called
bounties. But we must, in all cases, attend to the nature of the thing, without paying

any regard to the word.

THE WEALTH OF NATIONS

Digression concerning the Corn Trade and Corn Laws.

I cannot conclude this chapter concerning bounties, without observing, that the
praises which have been bestowed upon the law which establishes the bounty upon the
exportation of corn, and upon that system of regulations which is connected with it,
are altogether unmerited. A particular examination of the nature of the corn trade, and
of the principal British laws which relate to it, will sufficiently demonstrate the truth
of this assertion. The great importance of this subject must justify the length of the
digression.

The trade of the corn merchant is composed of four different branches, which,
though they may sometimes be all carried on by the same person, are, in their own
nature, four separate and distinct trades. These are, first, the trade of the inland dealer;
secondly, that of the merchant-importer for home consumption; thirdly, that of the
merchant-exporter of home produce for foreign consumption; and, fourthly, that of
the merchant-carrier, or of the importer of corn, in order to export it again.

I. The interest of the inland dealer, and that of the great body of the people, how
opposite soever they may at first appear, are, even in years of the greatest scarcity,
exactly the same. It is his interest to raise the price of his corn as high as the real
scatcity of the season requires, and it can never be his interest to raise it higher. By
raising the price, he discourages the consumption, and puts every body more or less,
but particularly the inferior ranks of people, upon thrift and good management If, by
raising it too high, he discourages the consumption so much that the supply of the
season is likely to go beyond the consumption of the season, and to last for some
time after the next crop begins to come in, he runs the hazard, not only of losing
a considerable part of his corn by natural causes, but of being obliged to sell what
remains of it for much less than what he might have had for it several months before.
If, by not raising the price high enough, he discourages the consumption so little, that
the supply of the season is likely to fall short of the consumption of the season, he not
only loses a part of the profit which he might otherwise have made, but he exposes the
people to suffer before the end of the season, instead of the hardships of a dearth, the
dreadful horrors of a famine. It is the interest of the people that their daily, weekly, and
monthly consumption should be proportioned as exactly as possible to the supply of
the season. The interest of the inland corn dealer is the same. By supplying them, as
nearly as he can judge, in this proportion, he is likely to sell all his corn for the highest
price, and with the greatest profit; and his knowledge of the state of the crop, and of
his daily, weekly, and monthly sales, enables him to judge, with more or less accuracy,
how far they really are supplied in this manner. Without intending the interest of the
people, he is necessarily led, by a regard to his own interest, to treat them, even in
years of scarcity, pretty much in the same mannet as the prudent master of a vessel is
sometimes obliged to treat his crew. When he foresees that provisions are likely to run
short, he puts them upon short allowance. Though from excess of caution he should
sometimes do this without any real necessity, yet all the inconveniencies which his crew
can thereby suffer are inconsiderable, in comparison of the danger, misery, and ruin,

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to which they might sometimes be exposed by a less provident conduct. Though, from
excess of avarice, in the same manner, the inland corn merchant should sometimes
taise the price of his corn somewhat higher than the scarcity of the season requires,
yet all the inconveniencies which the people can suffer from this conduct, which
effectually secures them from a famine in the end of the season, are inconsiderable, in
comparison of what they might have been exposed to by a more liberal way of dealing
in the beginning of it the corn merchant himself is likely to suffer the most by this
excess of avarice; not only from the indignation which it generally excites against him,
but, though he should escape the effects of this indignation, from the quantity of corn
which it necessarily leaves upon his hands in the end of the season, and which, if the
next season happens to prove favourable, he must always sell for a much lower price
than he might otherwise have had.

Were it possible, indeed, for one great company of merchants to possess themselves
of the whole crop of an extensive country, it might perhaps be their interest to deal
with it, as the Dutch are said to do with the spiceries of the Moluccas, to destroy or
throw away a considerable part of it, in order to keep up the price of the rest. But it is
scarce possible, even by the violence of law, to establish such an extensive monopoly
with regard to corn; and wherever the law leaves the trade free, it is of all commodities
the least liable to be engrossed or monopolized by the forced a few large capitals,
which buy up the greater part of it. Not only its value far exceeds what the capitals
of a few private men are capable of purchasing; but, supposing they were capable of
purchasing it, the manner in which it is produced renders this purchase altogether
impracticable. As, in every civilized country, it is the commodity of which the annual
consumption is the greatest; so a greater quantity of industry is annually employed in
producing corn than in producing any other commodity. When it first comes from the
ground, too, it is necessarily divided among a greater number of owners than any other
commodity; and these owners can never be collected into one place, like a number
of independent manufacturers, but are necessarily scattered through all the different
corners of the country. These first owners either immediately supply the consumers
in their own neighbourhood, or they supply other inland dealers, who supply those
consumers. The inland dealers in corn, therefore, including both the farmer and the
baker, are necessarily more numerous than the dealers in any other commodity; and
their dispersed situation renders it altogether impossible for them to enter into any
general combination. If, in a year of scarcity, therefore, any of them should find that
he had a good deal more corn upon hand than, at the current price, he could hope
to dispose of before the end of the season, he would never think of keeping up this
price to his own loss, and to the sole benefit of his rivals and competitors, but would
immediately lower it, in order to get rid of his corn before the new crop began to come
in. The same motives, the same interests, which would thus regulate the conduct of
any one dealer, would regulate that of every other, and oblige them all in general to sell
their corn at the price which, according to the best of their judgment, was most suitable

to the scarcity or plenty of the season.

THE WEALTH OF NATIONS

Whoever examines, with attention, the history of the dearths and famines which
have afflicted any part of Europe during either the course of the present or that of the
two preceding centuries, of several of which we have pretty exact accounts, will find, I
believe, that a dearth never has arisen from any combination among the inland dealers
in corn, nor from any other cause but a real scarcity, occasioned sometimes, perhaps,
and in some particular places, by the waste of war, but in by far the greatest number
of cases by the fault of the seasons; and that a famine has never arisen from any other
cause but the violence of government attempting, by improper means, to remedy the
inconveniencies of a dearth.

In an extensive corn country, between all the different parts of which there is a
free commerce and communication, the scarcity occasioned by the most unfavourable
seasons can never be so great as to produce a famine; and the scantiest crop, if managed
with frugality and economy, will maintain, through the year, the same number of people
that are commonly fed in a more affluent manner by one of moderate plenty. The
seasons most unfavourable to the crop are those of excessive drought or excessive rain.
But as corn grows equally upon high and low lands, upon grounds that are disposed to
be too wet, and upon those that are disposed to be too dry, either the drought or the
rain, which is hurtful to one part of the country, is favourable to another; and though,
both in the wet and in the dry season, the crop is a good deal less than in one more
properly tempered; yet, in both, what is lost in one part of the country is in some
measure compensated by what is gained in the other. In rice countries, where the crop
not only requires a very moist soil, but where, in a certain period of its growing, it
must be laid under water, the effects of a drought are much more dismal. Even in such
countries, however, the drought 1s, perhaps, scarce ever so universal as necessarily to
occasion a famine, if the government would allow a free trade. The drought in Bengal,
a few years ago, might probably have occasioned a very great dearth. Some improper
regulations, some injudicious restraints, imposed by the servants of the East India
Company upon the rice trade, contributed, perhaps, to turn that dearth into a famine.

When the government, in order to remedy the inconveniencies of a dearth, orders
all the dealers to sell their corn at what it supposes a reasonable price, it either hinders
them from bringing it to market, which may sometimes produce a famine even in the
beginning of the season; or, if they bring it thither, it enables the people, and thereby
encourages them to consume it so fast as must necessarily produce a famine before
the end of the season. The unlimited, unrestrained freedom of the corn trade, as it is
the only effectual preventive of the miseries of a famine, so it is the best palliative of
the inconveniencies of a dearth; for the inconveniencies of a real scarcity cannot be
remedied; they can only be palliated. No trade deserves more the full protection of the
law, and no trade requires it so much; because no trade is so much exposed to popular
odium.

In years of scarcity, the inferior ranks of people impute their distress to the avarice
of the corn merchant, who becomes the object of their hatred and indignation. Instead
of making profit upon such occasions, therefore, he is often in danger of being utterly

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ADAM SMITH

tuined, and of having his magazines plundered and destroyed by their violence. It is
in years of scarcity, however, when prices ate high, that the corn merchant expects
to make his principal profit. He is generally in contract with some farmers to furnish
him, for a certain number of years, with a certain quantity of corn, at a certain price.
This contract price is settled according to what is supposed to be the moderate and
reasonable, that is, the ordinary or average price, which, before the late yeats of scarcity,
was commonly about 28s. for the quarter of wheat, and for that of other grain in
proportion. In years of scarcity, therefore, the corn merchant buys a great part of his
corn for the ordinary price, and sells it for a much higher. That this extraordinary profit,
however, is no more than sufficient to put his trade upon a fair level with other trades,
and to compensate the many losses which he sustains upon other occasions, both from
the perishable nature of the commodity itself, and from the frequent and unforeseen
fluctuations of its price, seems evident enough, from this single circumstance, that great
fortunes are as seldom made in this as in any other trade. The popular odium, however,
which attends it in years of scarcity, the only years in which it can be very profitable,
renders people of character and fortune averse to enter into it. It is abandoned to an
inferior set of dealers; and millers, bakers, meal-men, and meal-factors, together with
a number of wretched hucksters, are almost the only middle people that, in the home
market, come between the grower and the consumer.

The ancient policy of Europe, instead of discountenancing this popular odium
against a trade so beneficial to the public, seems, on the contrary, to have authorised
and encouraged it.

By the 5th and 6th of Edward VI cap. 14, it was enacted, that whoever should buy
any corn or grain, with intent to sell it again, should be reputed an unlawful engrosser,
and should, for the first fault, suffer two months imprisonment, and forfeit the value of
the corn; for the second, suffer six months imprisonment, and forfeit double the value;
and, for the third, be set in the pillory, suffer imprisonment during the king’s pleasure,
and forfeit all his goods and chattels. The ancient policy of most other parts of Europe
was no better than that of England.

Our ancestors seem to have imagined, that the people would buy their corn cheaper
of the farmer than of the corn merchant, who, they were afraid, would require, over
and above the price which he paid to the farmer, an exorbitant profit to himself. They
endeavoured, therefore, to annihilate his trade altogether. They even endeavoured to
hinder, as much as possible, any middle man of any kind from coming in between the
grower and the consumer; and this was the meaning of the many restraints which they
imposed upon the trade of those whom they called kidders, or carriers of corn; a trade
which nobody was allowed to exercise without a licence, ascertaining his qualifications
as a man of probity and fair dealing. The authority of three justices of the peace
was, by the statute of Edward VI. necessary in order to grant this licence. But even
this restraint was afterwards thought insufficient, and, by a statute of Elizabeth, the
privilege of granting it was confined to the quarter-sessions.

The ancient policy of Europe endeavoured, in this manner, to regulate agriculture,

yet

THE WEALTH OF NATIONS

the great trade of the country, by maxims quite different from those which it established
with regard to manufactures, the great trade of the towns. By leaving a farmer no other
customers but either the consumers or their immediate factors, the kidders and carriers
of corn, it endeavoured to force him to exercise the trade, not only of a farmer, but
of a corn merchant, or corn retailer. On the contrary, it, in many cases, prohibited the
manufacturer from exercising the trade of a shopkeeper, or from selling his own goods
by retail. It meant, by the one law, to promote the general interest of the country, or to
render corn cheap, without, perhaps, its being well understood how this was to be done.
By the other, it meant to promote that of a particular order of men, the shopkeepers,
who would be so much undersold by the manufacturer, it was supposed, that their trade
would be ruined, if he was allowed to retail at all.

The manufacturer, however, though he had been allowed to keep a shop, and to sell
his own goods by retail, could not have undersold the common shopkeeper. Whatever
part of his capital he might have placed in his shop, he must have withdrawn it from
his manufacture. In order to carry on his business on a level with that of other people,
as he must have had the profit of a manufacturer on the one part, so he must have had
that of a shopkeeper upon the other. Let us suppose, for example, that in the particular
town where he lived, ten per cent. was the ordinary profit both of manufacturing and
shopkeeping stock; he must in this case have charged upon every piece of his own
goods, which he sold in his shop, a profit of twenty per cent. When he carried them
from his workhouse to his shop, he must have valued them at the price for which he
could have sold them to a dealer or shopkeeper, who would have bought them by
wholesale. If he valued them lower, he lost a part of the profit of his manufacturing
capital. When, again, he sold them from his shop, unless he got the same price at which
a shopkeeper would have sold them, he lost a part of the profit of his shop-keeping
capital. Though he might appear, therefore, to make a double profit upon the same
piece of goods, yet, as these goods made successively a part of two distinct capitals, he
made but a single profit upon the whole capital employed about them; and if he made
less than his profit, he was a loser, and did not employ his whole capital with the same
advantage as the greater part of his neighbours.

What the manufacturer was prohibited to do, the farmer was in some measure
enjoined to do; to divide his capital between two different employments; to keep one
part of it in his granaries and stack-yard, for supplying the occasional demands of
the market, and to employ the other in the cultivation of his land. But as he could
not afford to employ the latter for less than the ordinary profits of farming stock,
so he could as little afford to employ the former for less than the ordinary profits of
mercantile stock. Whether the stock which really carried on the business of a corn
merchant belonged to the person who was called a farmer, or to the person who was
called a corn merchant, an equal profit was in both cases requisite, in order to indemnify
its owner for employing it in this manner, in order to put his business on a level with
other trades, and in order to hinder him from having an interest to change it as soon
as possible for some other. The farmer, therefore, who was thus forced to exercise the

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ADAM SMITH

trade of a corn merchant, could not afford to sell his corn cheaper than any other corn
merchant would have been obliged to do in the case of a free competition.

The dealer who can employ his whole stock in one single branch of business, has an
advantage of the same kind with the workman who can employ his whole labour in one
single operation. As the latter acquires a dexterity which enables him, with the same two
hands, to perform a much greater quantity of work, so the former acquires so easy and
ready a method of transacting his business, of buying and disposing of his goods, that
with the same capital he can transact a much greater quantity of business. As the one
can commonly afford his work a good deal cheaper, so the other can commonly afford
his goods somewhat cheaper, than if his stock and attention were both employed about
a greater variety of objects. The greater part of manufacturers could not afford to retail
their own goods so cheap as a vigilant and active shopkeeper, whose sole business it
was to buy them by wholesale and to retail them again. The greater part of farmers
could still less afford to retail their own corn, to supply the inhabitants of a town, at
perhaps four or five miles distance from the greater part of them, so cheap as a vigilant
and active corn merchant, whose sole business it was to purchase corn by wholesale, to
collect it into a great magazine, and to retail it again.

The law which prohibited the manufacturer from exercising the trade of a
shopkeeper, endeavoured to force this division in the employment of stock to go on
faster than it might otherwise have done. The law which obliged the farmer to exercise
the trade of a corn merchant, endeavoured to hinder it from going on so fast. Both
laws were evident violations of natural liberty, and therefore unjust; and they were both,
too, as impolitic as they were unjust. It is the interest of every society, that things of
this kind should never either he forced or obstructed. The man who employs either his
labour or his stock in a greater variety of ways than his situation renders necessary, can
never hurt his neighbour by underselling him. He may hurt himself, and he generally
does so. Jack-of-all-trades will never be rich, says the proverb. But the law ought always
to trust people with the care of their own interest, as in their local situations they must
generally be able to judge better of it than the legislature can do. The law, however,
which obliged the farmer to exercise the trade of a corn merchant was by far the most
pernicious of the two.

It obstructed not only that division in the employment of stock which is so
advantageous to every society, but it obstructed likewise the improvement and
cultivation of the land. By obliging the farmer to carry on two trades instead of one, it
forced him to divide his capital into two parts, of which one only could be employed
in cultivation. But if he had been at liberty to sell his whole crop to a corn merchant
as fast as he could thresh it out, his whole capital might have returned immediately to
the land, and have been employed in buying more cattle, and hiring more servants, in
order to improve and cultivate it better. But by being obliged to sell his corn by retail,
he was obliged to keep a great part of his capital in his granaries and stack-yard through
the year, and could not therefore cultivate so well as with the same capital he might
otherwise have done. This law, therefore, necessarily obstructed the improvement of

ou)

THE WEALTH OF NATIONS

the land, and, instead of tending to render corn cheaper, must have tended to render it
scarcer, and therefore dearer, than it would otherwise have been.

After the business of the farmer, that of the corn merchant is in reality the trade
which, if properly protected and encouraged, would contribute the most to the raising
of corn. It would support the trade of the farmer, in the same manner as the trade of
the wholesale dealer supports that of the manufacturer.

The wholesale dealer, by affording a ready market to the manufacturer, by taking
his goods off his hand as fast as he can make them, and by sometimes even advancing
their price to him before he has made them, enables him to keep his whole capital, and
sometimes even more than his whole capital, constantly employed in manufacturing,
and consequently to manufacture a much greater quantity of goods than if he was
obliged to dispose of them himself to the immediate consumers, or even to the retailers.
As the capital of the wholesale merchant, too, is generally sufficient to replace that of
many manufacturers, this intercourse between him and them interests the owner of a
large capital to support the owners of a great number of small ones, and to assist them
in those losses and misfortunes which might otherwise prove ruinous to them.

An intercourse of the same kind universally established between the farmers and
the corn merchants, would be attended with effects equally beneficial to the farmers.
They would be enabled to keep their whole capitals, and even more than their whole
capitals constantly employed in cultivation. In case of any of those accidents to which
no trade is more liable than theirs, they would find in their ordinary customer, the
wealthy corn merchant, a person who had both an interest to support them, and the
ability to do it; and they would not, as at present, be entirely dependent upon the
forbearance of their landlord, or the mercy of his steward. Were it possible, as perhaps
it is not, to establish this intercourse universally, and all at once; were it possible to
turn all at once the whole farming stock of the kingdom to its proper business, the
cultivation of land, withdrawing it from every other employment into which any part
of it may be at present diverted; and were it possible, in order to support and assist,
upon occasion, the operations of this great stock, to provide all at once another stock
almost equally great; it is not, perhaps, very easy to imagine how great, how extensive,
and how sudden, would be the improvement which this change of circumstances would
alone produce upon the whole face of the country.

The statute of Edward VL. therefore, by prohibiting as much as possible any middle
man from coming in between the grower and the consumer, endeavoured to annihilate
a trade, of which the free exercise is not only the best palliative of the inconveniencies
of a dearth, but the best preventive of that calamity; after the trade of the farmer, no
trade contributing so much to the growing of corn as that of the corn merchant.

The rigour of this law was afterwards softened by several subsequent statutes,
which successively permitted the engrossing of corn when the price of wheat should
not exceed 20s. and 24s. 32s. and 40s. the quarter. At last, by the 15th of Charles II. ¢.7,
the engrossing or buying of corn, in order to sell it again, as long as the price of wheat
did not exceed 48s. the quarter, and that of other grain in proportion, was declared

380

sesanans
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ADAM SMITH

lawful to all persons not being forestallers, that is, not selling again in the same market
within three months. All the freedom which the trade of the inland corn dealer has
ever yet enjoyed was bestowed upon it by this statute. The statute of the twelfth of
the present king, which repeals almost all the other ancient laws against engrossers and
forestallers, does not repeal the restrictions of this particular statute, which therefore
still continue in force.

This statute, however, authorises in some measure two very absurd popular
prejudices.

First, It supposes, that when the price of wheat has risen so high as 48s. the quarter,
and that of other grain in proportion, corn is likely to be so engrossed as to hurt the
people. But, from what has been already said, it seems evident enough, that corn can
at no price be so engrossed by the inland dealers as to hurt the people; and 48s. the
quarter, besides, though it may be considered as a very high price, yet, in years of
scarcity, 1t is a price which frequently takes place immediately after harvest, when scarce
any part of the new crop can be sold off, and when it is impossible even for ignorance
to suppose that any part of it can be so engrossed as to hurt the people.

Secondly, It supposes that there is a certain price at which corn is likely to be
forestalled, that is, bought up in order to be sold again soon after in the same market, so
as to hurt the people. But if a merchant ever buys up corn, either going to a particular
market, or in a particular market, in order to sell it again soon after in the same market,
it must be because he judges that the market cannot be so liberally supplied through
the whole season as upon that particular occasion, and that the price, therefore, must
soon rise. If he judges wrong in this, and if the price does not rise, he not only loses
the whole profit of the stock which he employs in this manner, but a part of the stock
itself, by the expense and loss which necessarily attend the storing and keeping of
corn. He hurts himself, therefore, much more essentially than he can hurt even the
particular people whom he may hinder from supplying themselves upon that particular
market day, because they may afterwards supply themselves just as cheap upon any
other market day. If he judges right, instead of hurting the great body of the people,
he renders them a most important service. By making them feel the inconveniencies of
a dearth somewhat earlier than they otherwise might do, he prevents their feeling them
afterwards so severely as they certainly would do, if the cheapness of price encouraged
them to consume faster than suited the real scarcity of the season. When the scarcity 1s
real, the best thing that can be done for the people is, to divide the inconvenience of it
as equally as possible, through all the different months and weeks and days of the year.
The interest of the corn merchant makes him study to do this as exactly as he can; and
as no other person can have either the same interest, or the same knowledge, or the
same abilities, to do it so exactly as he, this most important operation of commerce
ought to be trusted entirely to him; or, in other words, the corn trade, so far at least as
concerns the supply of the home market, ought to be left perfectly free.

The popular fear of engrossing and forestalling may be compared to the popular
terrors and suspicions of witchcraft. The unfortunate wretches accused of this latter

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THE WEALTH OF NATIONS

crime were not more innocent of the misfortunes imputed to them, than those who
have been accused of the former. The law which put an end to all prosecutions against
witchcraft, which put it out of any man’s power to gratify his own malice by accusing
his neighbour of that imaginary crime, seems effectually to have put an end to those
fears and suspicions, by taking away the great cause which encouraged and supported
them. The law which would restore entire freedom to the inland trade of corn, would
probably prove as effectual to put an end to the popular fears of engrossing and
forestalling.

The 15th of Charles Il. c. 7, however, with all its imperfections, has, perhaps,
contributed more, both to the plentiful supply of the home market, and to the increase
of tillage, than any other law in the statute book. It is from this law that the inland corn
trade has derived all the liberty and protection which it has ever yet enjoyed; and both
the supply of the home market and the interest of tillage are much more effectually
promoted by the inland, than either by the importation or exportation trade.

The proportion of the average quantity of all sorts of grain imported into Great
Britain to that of all sorts of grain consumed, it has been computed by the author
of the Tracts upon the Corn Trade, does not exceed that of one to five hundred and
seventy. For supplying the home market, therefore, the importance of the inland trade
must be to that of the importation trade as five hundred and seventy to one.

The average quantity of all sorts of grain exported from Great Britain does not,
according to the same author, exceed the one-and-thirtieth part of the annual produce.
For the encouragement of tillage, therefore, by providing a market for the home
produce, the importance of the inland trade must be to that of the exportation trade
as thirty to one.

I have no great faith in political arithmetic, and I mean not to warrant the exactness
of either of these computations. I mention them only in order to show of how much
less consequence, in the opinion of the most judicious and experienced persons, the
foreign trade of corn is than the home trade. The great cheapness of corn in the years
immediately preceding the establishment of the bounty may, perhaps with reason, he
ascribed in some measure to the operation of this statute of Charles I. which had
been enacted about five-and-twenty years before, and which had, therefore, full time
to produce its effect.

A very few words will sufficiently explain all that I have to say concerning the other
three branches of the corn trade.

H. The trade of the merchant-importer of foreign corn for home consumption,
evidently contributes to the immediate supply of the home market, and must so far
be immediately beneficial to the great body of the people. It tends, indeed, to lower
somewhat the average money price of corn, but not to diminish its real value, or the
quantity of labour which it is capable of maintaining. If importation was at all times
free, our farmers and country gentlemen would probably, one year with another, get
less money for their corn than they do at present, when importation is at most times
in effect prohibited; but the money which they got would be of more value, would buy

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ADAM SMITH

more goods of all other kinds, and would employ more labour. Their real wealth, their
real revenue, therefore, would be the same as at present, though it might be expressed
by a smaller quantity of silver, and they would neither be disabled nor discouraged from
cultivating corn as much as they do at present. On the contrary, as the rise in the real
value of silver, in consequence of lowering the money price of corn, lowers somewhat
the money price of all other commodities, it gives the industry of the country where
it takes place some advantage in all foreign markets and thereby tends to encourage
and increase that industry. But the extent of the home market for corn must be in
proportion to the general industry of the country where it grows, or to the number
of those who produce something else, and therefore, have something else, or, what
comes to the same thing, the price of something else, to give in exchange for corn.
But in every country, the home market, as it is the nearest and most convenient, so is it
likewise the greatest and most important market for corn. That rise in the real value of
silver, therefore, which is the effect of lowering the average money price of corn, tends
to enlarge the greatest and most important market for corn, and thereby to encourage,
instead of discouraging its growth.

By the 22d of Charles II. c. 13, the importation of wheat, whenever the price in
the home market did not exceed 53s:4d. the quarter, was subjected to a duty of 16s.
the quarter; and to a duty of 8s. whenever the price did not exceed (4. The former of
these two prices has, for more than a century past, taken place only in times of very
great scarcity; and the latter has, so far as I know, not taken place at all. Yet, till wheat
has risen above this latter price, it was, by this statute, subjected to a very high duty;
and, till it had risen above the former, to a duty which amounted to a prohibition. The
importation of other sorts of grain was restrained at rates and by duties, in proportion
to the value of the grain, almost equally high. Before the 13th of the present king, the
following were the duties payable upon the importation of the different sorts of grain:

Grain. Duties. Duties Duties.
Beans to 28s. per qr. 19s:10d. after till 40s. 16s:8d. then 12d.
Barley to.28s7 = 19s:10d. SO2SN tossed,

Malt is prohibited by the annual malt-tax bill.

Oats to 16s. - 5s:10d. after - 9'/d.
Pease to 40s. - 16s: Od. after - 97/ad.
Ryewei to S0smen 119s:10dsullAds: 16s:8d. =: 12d.
Wheat tor44s) =. 218: 9d. tll 53s:4d. 17%s. - = 8s.

till £4, and after that about 1s:4d.
Buck-wheat to 32s. per qr. to pay 16s.

These different duties were imposed, partly by the 22d of Charles II. in place of
the old subsidy, partly by the new subsidy, by the one-third and two-thirds subsidy, and
by the subsidy 1747. Subsequent laws still further increased those duties.

The distress which, in years of scarcity, the strict execution of those laws might
have brought upon the people, would probably have been very great; but, upon
such occasions, its execution was generally suspended by temporary statutes, which

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THE WEALTH OF NATIONS

permitted, for a limited time, the importation of foreign corn. The necessity of these
temporary statutes sufficiently demonstrates the impropriety of this general one.

These restraints upon importation, though prior to the establishment of the bounty,
were dictated by the same spirit, by the same principles, which afterwards enacted that
regulation. How hurtful soever in themselves, these, or some other restraints upon
importation, became necessary in consequence of that regulation. If, when wheat was
either below 48s. the quarter, or not much above it, foreign corn could have been
imported, either duty free, or upon paying only a small duty, it might have been exported
again, with the benefit of the bounty, to the great loss of the public revenue, and to the
entire perversion of the institution, of which the object was to extend the market for
the home growth, not that for the growth of foreign countries.

II. The trade of the merchant-exporter of corn for foreign consumption, certainly
does not contribute directly to the plentiful supply of the home market. It does so,
however, indirectly. From whatever source this supply maybe usually drawn, whether
from home growth, or from foreign importation, unless more corn is either usually
grown, or usually imported into the country, than what is usually consumed in it, the
supply of the home market can never be very plentiful. But unless the surplus can, in
all ordinary cases, be exported, the growers will be careful never to grow more, and
the importers never to import more, than what the bare consumption of the home
market requires. That market will very seldom be overstocked; but it will generally be
understocked; the people, whose business it is to supply it, being generally afraid lest
their goods should be left upon their hands. The prohibition of exportation limits the
improvement and cultivation of the country to what the supply of its own inhabitants
require. The freedom of exportation enables it to extend cultivation for the supply of
foreign nations.

By the 12th of Charles II. c.4, the exportation of corn was permitted whenever the
price of wheat did not exceed 40s. the quarter, and that of other grain in proportion. By
the 15th of the same prince, this liberty was extended till the price of wheat exceeded
48s. the quarter; and by the 22d, to all higher prices. A poundage, indeed, was to be paid
to the king upon such exportation; but all grain was rated so low in the book of rates,
that this poundage amounted only, upon wheat to 1s., upon oats to 4d., and upon. all
other grain to 6d. the quarter. By the 1st of William and Mary, the act which established
this bounty, this small duty was virtually taken off whenever the price of wheat did not
exceed 48s. the quarter; and by the 11th and 12th of William III. c. 20, it was expressly
taken off at all higher prices.

The trade of the merchant-exporter was, in this manner, not only encouraged by
a bounty, but rendered much more free than that of the inland dealer. By the last of
these statutes, corn could be engrossed at any price for exportation; but it could not be
engrossed for inland sale, except when the price did not exceed 48s. the quarter. The
interest of the inland dealer, however, it has already been shown, can never be opposite
to that of the great body of the people. That of the merchant-exporter may, and in fact
sometimes is. If, while his own country labours under a dearth, a neighbouring country

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should be afflicted with a famine, it might be his interest to catry corn to the latter
country, in such quantities as might very much aggravate the calamities of the dearth.
The plentiful supply of the home market was not the direct object of those statutes;
but, under the pretence of encouraging agriculture, to raise the money price of corn as
high as possible, and thereby to occasion, as much as possible, a constant dearth in the
home market. By the discouragement of importation, the supply of that market; even
in times of great scarcity, was confined to the home growth; and by the encouragement
of exportation, when the price was so high as 48s. the quarter, that market was not,
even in times of considerable scarcity, allowed to enjoy the whole of that growth. The
temporary laws, prohibiting, for a limited time, the exportation of corn, and taking
off, for a limited time, the duties upon its importation, expedients to which Great
Britain has been obliged so frequently to have recourse, sufficiently demonstrate the
impropriety of her general system. Had that system been good, she would not so
frequently have been reduced to the necessity of departing from it.

Were all nations to follow the liberal system of free exportation and free
importation, the different states into which a great continent was divided, would so far
resemble the different provinces of a great empire. As among the different provinces
of a great empire, the freedom of the inland trade appears, both from reason and
experience, not only the best palliative of a dearth, but the most effectual preventive
of a famine; so would the freedom of the exportation and importation trade be among
the different states into which a great continent was divided. The larger the continent,
the easier the communication through all the different parts of it, both by land and
by water, the less would any one particular part of it ever be exposed to either of
these calamities, the scarcity of any one country being more likely to be relieved by
the plenty of some other. But very few countries have entirely adopted this liberal
system. The freedom of the corn trade is almost everywhere more or less restrained,
and in many countries is confined by such absurd regulations, as frequently aggravate
the unavoidable misfortune of a dearth into the dreadful calamity of a famine. The
demand of such countries for corn may frequently become so great and so urgent, that
a small state in their neighbourhood, which happened at the same time to be labouring
under some degree of dearth, could not venture to supply them without exposing
itself to the like dreadful calamity. The very bad policy of one country may thus render
it, in some measure, dangerous and imprudent to establish what would otherwise be
the best policy in another. The unlimited freedom of exportation, however, would be
much less dangerous in great states, in which the growth being much greater, the supply
could seldom be much affected by any quantity or corn that was likely to be exported.
In a Swiss canton, or in some of the little states in Italy, it may, perhaps, sometimes
be necessary to restrain the exportation of corn. In such great countries as France or
England, it scarce ever can. To hinder, besides, the farmer from sending his goods at all
times to the best market, is evidently to sacrifice the ordinary laws of justice to an idea
of public utility, to a sort of reasons of state; an act or legislative authority which ought
to be exercised only, which can be pardoned only, in cases of the most urgent necessity.

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The price at which exportation of corn is prohibited, if it is ever to be prohibited,
ought always to be a very high price.

The laws concerning corn may everywhere be compared to the laws concerning
religion. The people feel themselves so much interested in what relates either to their
subsistence in this life, or to their happiness in a life to come, that government must
yield to their prejudices, and, in order to preserve the public tranquillity, establish that
system which they approve of. It is upon this account, perhaps, that we so seldom find
a reasonable system established with regard to either of those two capital objects.

IV. The trade of the merchant-carrier, or of the importer of foreign corn, in order
to export it again, contributes to the plentiful supply of the home market. It 1s not,
indeed, the direct purpose of his trade to sell his corn there; but he will generally be
willing to do so, and even for a good deal less money than he might expect in a foreign
market; because he saves in this manner the expense of loading and unloading, of
freight and insurance. The inhabitants of the country which, by means of the carrying
trade, becomes the magazine and storehouse for the supply of other countries, can
very seldom be in want themselves. Though the carrying trade must thus contribute to
reduce the average money price of corn in the home market, it would not thereby lower
its real value; it would only raise somewhat the real value of silver.

The carrying trade was in effect prohibited in Great Britain, upon all ordinary
occasions, by the high duties upon the importation of foreign corn, of the greater part
of which there was no drawback; and upon extraordinary occasions, when a scatcity
made it necessary to suspend those duties by temporary statutes, exportation was
always prohibited. By this system of laws, therefore, the carrying trade was in effect
prohibited.

That system of laws, therefore, which is connected with the establishment of the
bounty, seems to deserve no part of the praise which has been bestowed upon it.
The improvement and prosperity of Great Britain, which has been so often ascribed
to those laws, may very easily be accounted for by other causes. That security which
the laws in Great Britain give to every man, that he shall enjoy the fruits of his own
labour, is alone sufficient to make any country flourish, notwithstanding these and
twenty other absurd regulations of commerce; and this security was perfected by the
Revolution, much about the same time that the bounty was established. The natural
effort of every individual to better his own condition, when suffered to exert itself
with freedom and security, is so powerful a principle, that it is alone, and without any
assistance, not only capable of carrying on the society to wealth and prosperity, but of
surmounting a hundred impertinent obstructions, with which the folly of human laws
too often encumberts its operations: though the effect of those obstructions is always,
more or less, either to encroach upon its freedom, or to diminish its security. In Great
Britain industry is perfectly secure; and though it is far from being perfectly free, it is as
free or freer than in any other part of Europe.

Though the period of the greatest prosperity and improvement of Great Britain
has been posterior to that system of laws which is connected with the bounty, we must

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not upon that account, impute it to those laws. It has been posterior likewise to the
national debt; but the national debt has most assuredly not been the cause of it.

Though the system of laws which is connected with the bounty, has exactly the
same tendency with the practice of Spain and Portugal, to lower somewhat the value of
the precious metals in the country where it takes place; yet Great Britain is certainly one
of the richest countries in Europe, while Spain and Portugal are perhaps amongst the
most beggarly. This difference of situation, however, may easily be accounted for from
two different causes. First, the tax in Spain, the prohibition in Portugal of exporting
gold and silver, and the vigilant police which watches over the execution of those
laws, must, in two vety poor countries, which between them import annually upwards
of six millions sterling, operate not only more directly, but much more forcibly, in
reducing the value of those metals there, than the corn laws can do in Great Britain.
And, secondly, this bad policy is not in those countries counterbalanced by the general
liberty and security of the people. Industry is there neither free nor secure; and the civil
and ecclesiastical governments of both Spain and Portugal are such as would alone be
sufficient to perpetuate their present state of poverty, even though their regulations of
commerce were as wise as the greatest part of them are absurd and foolish.

The 13th of the present king, c. 43, seems to have established a new system with
regard to the corn laws, in many respects better than the ancient one, but in one or two
respects perhaps not quite so good.

By this statute, the high duties upon importation for home consumption are taken
off, so soon as the price of middling wheat rises to 48s. the quarter; that of middling
tye, pease, or beans, to 32s.; that of barley to 24s.; and that of oats to 16s.; and instead
of them, a small duty is imposed of only 6d upon the quarter of wheat, and upon
that or other grain in proportion. With regard to all those different sorts of grain, but
particularly with regard to wheat, the home market is thus opened to foreign supplies,
at prices considerably lower than before.

By the same statute, the old bounty of 5s. upon the exportation of wheat, ceases
so soon as the price rises to 44s. the quarter, instead of 48s. the price at which it ceased
before; that of 2s:6d. upon the exportation of barley, ceases so soon as the price rises
to 22s. instead of 24s. the price at which it ceased before; that of 2s:6d. upon the
exportation of oatmeal, ceases so soon as the price rises to 14s. instead of 15s. the
price at which it ceased before. The bounty upon rye is reduced from 3s:6d. to 3s. and
it ceases so soon as the price rises to 28s. instead of 32s. the price at which it ceased
before. If bounties are as improper as I have endeavoured to prove them to be, the
sooner they cease, and the lower they are, so much the better.

The same statute permits, at the lowest prices, the importation of corn in order
to be exported again, duty free, provided it is in the mean time lodged in a warehouse
under the joint locks of the king and the importer. This liberty, indeed, extends to no
more than twenty-five of the different ports of Great Britain. They are, however, the
principal ones; and there may not, perhaps, be warehouses proper for this purpose in

the greater part of the others.
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So far this law seems evidently an improvement upon the ancient system.

But by the same law, a bounty of 2s. the quarter is given for the exportation of
oats, whenever the price does not exceed fourteen shillings. No bounty had ever been
given before for the exportation of this grain, no more than for that of pease or beans.

By the same law, too, the exportation of wheat is prohibited so soon as the price
tises to forty-four shillings the quarter; that of rye so soon as it rises to twenty-eight
shillings; that of barley so soon as it rises to twenty-two shillings; and that of oats so
soon as they rise to fourteen shillings. Those several prices seem all of them a good
deal too low; and there seems to be an impropriety, besides, in prohibiting exportation
altogether at those precise prices at which that bounty, which was given in order to
force it, is withdrawn. The bounty ought certainly either to have been withdrawn at a
much lower price, or exportation ought to have been allowed at a much higher.

So far, therefore, this law seems to be inferior to the ancient system. With all its
imperfections, however, we may perhaps say of it what was said of the laws of Solon,
that though not the best in itself, it is the best which the interest, prejudices, and temper
of the times, would admit of. It may perhaps in due time prepare the way for a better.

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CHAPTER VI.
OF TREATIES OF COMMERCE.

\Wiglee a nation binds itself by treaty, either to permit the entry of certain goods
from one foreign country which it prohibits from all others, or to exempt the
goods of one country from duties to which it subjects those of all others, the country,
or at least the merchants and manufacturers of the country, whose commerce is so
favoured, must necessarily derive great advantage from the treaty. Those merchants and
manufacturers enjoy a sort of monopoly in the country which is so indulgent to them.
That country becomes a market, both more extensive and more advantageous for their
goods: more extensive, because the goods of other nations being either excluded or
subjected to heavier duties, it takes off a greater quantity of theirs; more advantageous,
because the merchants of the favoured country, enjoying a sort of monopoly there,
will often sell their goods for a better price than if exposed to the free competition of
all other nations.

Such treaties, however, though they may be advantageous to the merchants and
manufacturers of the favoured, are necessarily disadvantageous to those of the
favouring country. A monopoly is thus granted against them to a foreign nation; and
they must frequently buy the foreign goods they have occasion for, dearer than if
the free competition of other nations was admitted. That part of its own produce
with which such a nation purchases foreign goods, must consequently be sold cheaper;
because, when two things are exchanged for one another, the cheapness of the one is
a necessary consequence, or rather is the same thing, with the dearness of the other.
The exchangeable value of its annual produce, therefore, is likely to be diminished by
every such treaty. This diminution, however, can scarce amount to any positive loss, but
only to a lessening of the gain which it might otherwise make. Though it sells its goods
cheaper than it otherwise might do, it will not probably sell them for less than they cost;
nor, as in the case of bounties, for a price which will not replace the capital employed in
bringing them to market, together with the ordinary profits of stock. The trade could
not go on long if it did. Even the favouring country, therefore, may still gain by the
trade, though less than if there was a free competition.

Some treaties of commerce, however, have been supposed advantageous, upon
principles very different from these; and a commercial country has sometimes granted
a monopoly of this kind, against itself, to certain goods of a foreign nation, because
it expected, that in the whole commerce between them, it would annually sell more
than it would buy, and that a balance in gold and silver would be annually returned to
it. It is upon this principle that the treaty of commerce between England and Portugal,

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concluded in 1703 by Mr Methuen, has been so much commended. The following is a
literal translation of that treaty, which consists of three articles only.

ART. L. His sacred royal majesty of Portugal promises, both in his own name and
that of his successors, to admit for ever hereafter, into Portugal, the woollen cloths, and
the rest of the woollen manufactures of the British, as was accustomed, till they were

prohibited by the law; nevertheless upon this condition:

ART. II. That is to say, that her sacred royal majesty of Great Britain shall, in her
own name, and that of her successors, be obliged, for ever hereafter, to admit the wines
of the growth of Portugal into Britain; so that at no time, whether there shall be peace
or war between the kingdoms of Britain and France, any thing more shall be demanded
for these wines by the name of custom or duty, or by whatsoever other title, directly or
indirectly, whether they shall be imported into Great Britain in pipes or hogsheads, or
other casks, than what shall be demanded for the like quantity or measure of French
wine, deducting or abating a third part of the custom or duty. But if, at any time, this
deduction or abatement of customs, which is to be made as aforesaid, shall in any
manner be attempted and prejudiced, it shall be just and lawful for his sacred royal
majesty of Portugal, again to prohibit the woollen cloths, and the rest of the British
woollen manufactures.

ART. II. The most excellent lords the plenipotentiaries promise and take upon
themselves, that their above named masters shall ratify this treaty; and within the space
of two months the ratification shall be exchanged.

By this treaty, the crown of Portugal becomes bound to admit the English woollens
upon the same footing as before the prohibition; that is, not to raise the duties which
had been paid before that time. But it does not become bound to admit them upon
any better terms than those of any other nation, of France or Holland, for example.
The crown of Great Britain, on the contrary, becomes bound to admit the wines of
Portugal, upon paying only two-thirds of the duty which is paid for those of France,
the wines most likely to come into competition with them. So far this treaty, therefore,
is evidently advantageous to Portugal, and disadvantageous to Great Britain.

It has been celebrated, however, as a masterpiece of the commercial policy of
England. Portugal receives annually from the Brazils a greater quantity of gold than
can be employed in its domestic commerce, whether in the shape of coin or of plate.
The surplus is too valuable to be allowed to lie idle and locked up in coffers; and as it
can find no advantageous market at home, it must, notwithstanding; any prohibition,
be sent abroad, and exchanged for something for which there is a more advantageous
market at home. A large share of it comes annually to England, in return either for
English goods, or for those of other European nations that receive their returns
through England. Mr Barretti was informed, that the weekly packet-boat from Lisbon
brings, one week with another, more than £50,000 in gold to England. The sum had

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ADAM SMITH

probably been exaggerated. It would amount to more than £2,600,000 a year, which is
more than the Brazils are supposed to afford.

Our merchants were, some years ago, out of humour with the crown of Portugal.
Some privileges which had been granted them, not by treaty, but by the free grace of
that crown, at the solicitation, indeed, it is probable, and in return for much greater
favours, defence and protection from the crown of Great Britain, had been either
infringed or revoked. The people, therefore, usually most interested in celebrating the
Portugal trade, were then rather disposed to represent it as less advantageous than it
had commonly been imagined. The far greater part, almost the whole, they pretended,
of this annual importation of gold, was not on account of Great Britain, but of other
European nations; the fruits and wines of Portugal annually imported into Great
Britain nearly compensating the value of the British goods sent thither.

Let us suppose, however, that the whole was on account of Great Britain, and that
it amounted to a still greater sum than Mr Barretti seems to imagine; this trade would
not, upon that account, be more advantageous than any other, in which, for the same
value sent out, we received an equal value of consumable goods in return.

Itis but a very small part of this importation which, it can be supposed, is employed
as an annual addition, either to the plate or to the coin of the kingdom. The rest must
all be sent abroad, and exchanged for consumable goods of some kind or other. But if
those consumable goods were purchased directly with the produce of English industry,
it would be more for the advantage of England, than first to purchase with that produce
the gold of Portugal, and afterwards to purchase with that gold those consumable
goods. A direct foreign trade of consumption is always more advantageous than a
round-about one; and to bring the same value of foreign goods to the home market
requires a much smaller capital in the one way than in the ether. If a smaller share of its
industry, therefore, had been employed in producing goods fit for the Portugal market,
and a greater in producing those lit for the other markets, where those consumable
goods for which there is a demand in Great Britain are to be had, it would have been
more for the advantage of England. To procure both the gold which it wants for its
own use, and the consumable goods, would, in this way, employ a much smaller capital
than at present. There would be a spare capital, therefore, to be employed for other
purposes, in exciting an additional quantity of industry, and in raising a greater annual
produce.

Though Britain were entirely excluded from the Portugal trade, it could find very
little difficulty in procuring all the annual supplies of gold which it wants, either for the
purposes of plate, or of coin, or of foreign trade. Gold, like every other commodity, is
always somewhere or another to be got for its value by those who have that value to give
for it. The annual surplus of gold in Portugal, besides, would still be sent abroad, and
though not carried away by Great Britain, would be carried away by some other nation,
which would be glad to sell it again for its price, in the same manner as Great Britain
does at present. In buying gold of Portugal, indeed, we buy it at the first hand; whereas,
in buying it of any other nation, except Spain, we should buy it at the second, and

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THE WEALTH OF NATIONS

might pay somewhat dearer. This difference, however, would surely be too insignificant
to deserve the public attention.

Almost all our gold, it is said, comes from Portugal. With other nations, the balance
of trade is either against as, or not much in our favour. But we should remember, that
the more gold we import from one country, the less we must necessarily import from
all others. The effectual demand for gold, like that for every other commodity, is in
every country limited to a certain quantity. If nine-tenths of this quantity are imported
from one country, there remains a tenth only to be imported from all others. The more
gold, besides, that is annually imported from some particular countries, over and above
what is requisite for plate and for coin, the more must necessarily be exported to some
others: and the more that most insignificant object of modern policy, the balance of
trade, appears to be in our favour with some particular countries, the more it must
necessarily appear to be against us with many others.

It was upon this silly notion, however, that England could not subsist without
the Portugal trade, that, towards the end of the late war, France and Spain, without
pretending either offence or provocation, required the king of Portugal to exclude all
British ships from his ports, and, for the security of this exclusion, to receive into them
French or Spanish garrisons. Had the king of Portugal submitted to those ignominious
terms which his brother-in-law the king of Spain proposed to him, Britain would
have been freed from a much greater inconveniency than the loss of the Portugal
trade, the burden of supporting a very weak ally, so unprovided of every thing for
his own defence, that the whole power of England, had it been directed to that single
purpose, could scarce, perhaps, have defended him for another campaign. The loss of
the Portugal trade would, no doubt, have occasioned a considerable embarrassment to
the merchants at that time engaged in it, who might not, perhaps, have found out, for
a year or two, any other equally advantageous method of employing their capitals; and
in this would probably have consisted all the inconveniency which England could have
suffered from this notable piece of commercial policy.

The great annual importation of gold and silver is neither for the purpose of
plate nor of coin, but of foreign trade. A round-about foreign trade of consumption
can be carried on more advantageously by means of these metals than of almost any
other goods. As they are the universal instruments of commerce, they are more readily
received in return for all commodities than any other goods; and, on account of their
small bulk and great value, it costs less to transport them backward and forward from
one place to another than almost any other sort of merchandize, and they lose less
of their value by being so transported. Of all the commodities, therefore, which are
bought in one foreign country, for no other purpose but to be sold or exchanged again
for some other goods in another, there are none so convenient as gold and silver.
In facilitating all the different round-about foreign trades of consumption which are
carried on in Great Britain, consists the principal advantage of the Portugal trade; and
though it is not a capital advantage, it is, no doubt, a considerable one.

That any annual addition which, it can reasonably be supposed, is made either

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to the plate or to the coin of the kingdom, could require but a very small annual
importation of gold and silver, seems evident enough; and though we had no direct
trade with Portugal, this small quantity could always, somewhere or another, be very
easily got.

Though the goldsmiths trade be very considerable in Great Britain, the far greater
part of the new plate which they annually sell, is made from other old plate melted
down; so that the addition annually made to the whole plate of the kingdom cannot be
very great, and could require but a very small annual importation.

It is the same case with the coin. Nobody imagines, I believe, that even the greater
part of the annual coinage, amounting, for ten years together, before the late reformation
of the gold coin, to upwards of £800,000 a-year in gold, was an annual addition to the
money before current in the kingdom. In a country where the expense of the coinage
is defrayed by the government, the value of the coin, even when it contains its full
standard weight of gold and silver, can never be much greater than that of an equal
quantity of those metals uncoined, because it requires only the trouble of going to the
mint, and the delay, perhaps, of a few weeks, to procure for any quantity of uncoined
gold and silver an equal quantity of those metals in coin; but in every country the greater
part of the current coin is almost always more or less worn, or otherwise degenerated
from its standard. In Great Britain it was, before the late reformation, a good deal so,
the gold being more than two per cent., and the silver more than eight per cent. below
its standard weight. But if forty-four guineas and a-half, containing their full standard
weight, a pound weight of gold, could purchase very little more than a pound weight
of uncoined gold; forty-four guineas and a-half, wanting a part of their weight, could
not purchase a pound weight, and something was to be added, in order to make up the
deficiency. The current price of gold bullion at market, therefore, instead of being the
same with the mint price, or £46:14:6, was then about £47:14s., and sometimes about
£48. When the greater part of the coin, however, was in this degenerate condition,
forty four guineas and a-half, fresh from the mint, would purchase no more goods in
the market than any other ordinary guineas; because, when they came into the coffers
of the merchant, being confounded with other money, they could not afterwards be
distinguished without more trouble than the difference was worth. Like other guineas,
they were worth no more than £46:14:6. If thrown into the melting pot, however, they
produced, without any sensible loss, a pound weight of standard gold, which could be
sold at any time for between £47:14s. and £48, either in gold or silver, as fit for all the
purposes of coin as that which had been melted down. There was an evident profit,
therefore, in melting down new-coined money; and it was done so instantaneously,
that no precaution of government could prevent it. The operations of the mint were,
upon this account, somewhat like the web of Penelope; the work that was done in the
day was undone in the night. The mint was employed, not so much in making daily
additions to the coin, as in replacing the very best part of it, which was daily melted
down.

Were the private people who carry their gold and silver to the mint to pay themselves

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- THE WEALTH OF NATIONS

for the coinage, it would add to the value of those metals, in the same manner as the
fashion does to that of plate. Coined gold and silver would be more valuable than
uncoined. The seignorage, if it was not exorbitant, would add to the bullion the whole
value of the duty; because, the government having everywhere the exclusive privilege
of coining, no coin can come to market cheaper than they think proper to afford it.
If the duty was exorbitant, indeed, that is, if it was very much above the real value of
the labour and expense requisite for coinage, false coiners, both at home and abroad,
might be encouraged, by the great difference between the value of bullion and that of
coin, to pour in so great a quantity of counterfeit money as might reduce the value of
the government money. In France, however, though the seignorage is eight per cent.,
no sensible inconveniency of this kind is found to arise from it. The dangers to which
a false coiner is everywhere exposed, if he lives in the country of which he counterfeits
the coin, and to which his agents or correspondents are exposed, if he lives in a foreign
country, are by far too great to be incurred for the sake of a profit of six or seven per
cent.

The seignorage in France raises the value of the coin higher than in proportion to
the quantity of pure gold which it contains. Thus, by the edict of January 1726, the mint
price of fine gold of twenty-four carats was fixed at seven hundred and forty livres nine
sous and one denier one-eleventh the mark of eight Paris ounces. {See Dictionnaire des
Monnoies, tom. ii. article Seigneurage, p. 439, par 81. Abbot de Bazinghen, Conseiller-
Commissaite en la Cour des Monnoies a Paris.} The gold coin of France, making an
allowance for the remedy of the mint, contains twenty-one carats and three-fourths of
fine gold, and two carats one-fourth of alloy. The mark of standard gold, therefore,
is worth no more than about six hundred and seventy-one livres ten deniers. But in
France this mark of standard gold is coined into thirty louis d’ors of twenty-four livres
each, or into seven hundred and twenty livres. The coinage, therefore, increases the
value of a mark of standard gold bullion, by the difference between six hundred and
seventy-one livres ten deniers and seven hundred and twenty livres, or by forty-eight
livres nineteen sous and two deniers.

A seignorage will, in many cases, take away altogether, and will in all cases diminish,
the profit of melting down the new coin. This profit always arises from the difference
between the quantity of bullion which the common currency ought to contain and
that which it actually does contain. If this difference is less than the seignorage, there
will be loss instead of profit. If it is equal to the seignorage, there will be neither profit
not loss. If it is greater than the seignorage, there will, indeed, be some profit, but less
than if there was no seignorage. If, before the late reformation of the gold coin, for
example, there had been a seignorage of five per cent. upon the coinage, there would
have been a loss of three per cent. upon the melting down of the gold coin. If the
seignorage had been two per cent., there would have been neither profit nor loss. If
the seignorage had been one per cent., there would have been a profit but of one per
cent. only, instead of two per cent. Wherever money is received by tale, therefore, and
not by weight, a seignorage is the most effectual preventive of the melting down of the

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coin, and, for the same reason, of its exportation. It is the best and heaviest pieces that
are commonly either melted down or exported, because it is upon such that the largest
profits are made.

The law for the encouragement of the coinage, by rendering it duty-free, was first
enacted during the reign of Charles I. for a limited time, and afterwards continued,
by different prolongations, till 1769, when it was rendered perpetual. The bank of
England, in order to replenish their coffers with money, are frequently obliged to carry
bullion to the mint; and it was more for their interest, they probably imagined, that the
coinage should be at the expense of the government than at their own. It was probably
out of complaisance to this great company, that the government agreed to render this
law perpetual. Should the custom of weighing gold, however, come to be disused, as it
is very likely to be on account of its inconveniency; should the gold coin of England
come to be received by tale, as it was before the late recoinage this great company may,
perhaps, find that they have, upon this, as upon some other occasions, mistaken their
own interest not a little.

Before the late recoinage, when the gold currency of England was two per cent.
below its standard weight, as there was no seignorage, it was two per cent. below the
value of that quantity of standard gold bullion which it ought to have contained. When
this great company, therefore, bought gold bullion in order to have it coined, they
were obliged to pay for it two per cent. more than it was worth after the coinage. But
if there had been a seignorage of two per cent. upon the coinage, the common gold
currency, though two per cent. below its standard weight, would, notwithstanding, have
been equal in value to the quantity of standard gold which it ought to have contained;
the value of the fashion compensating in this case the diminution of the weight. They
would, indeed, have had the seignorage to pay, which being two per cent., their loss
upon the whole transaction would have been two per cent., exactly the same, but no
greater than it actually was.

If the seignorage had been five per cent. and the gold currency only two per cent.
below its standard weight, the bank would, in this case, have gained three per cent.
upon the price of the bullion; but as they would have had a seignorage of five per
cent. to pay upon the coinage, their loss upon the whole transaction would, in the same
manner, have been exactly two per cent.

If the seignorage had been only one per cent., and the gold currency two per cent.
below its standard weight, the bank would, in this case, have lost only one per cent.
upon the price of the bullion; but as they would likewise have had a seignorage of one
per cent. to pay, their loss upon the whole transaction would have been exactly two per
cent., in the same manner as in all other cases.

If there was a reasonable seignorage, while at the same time the coin contained
its full standard weight, as it has done very nearly since the late recoinage, whatever
the bank might lose by the seignorage, they would gain upon the price of the bullion;
and whatever they might gain upon the price of the bullion, they would lose by the
seignorage. They would neither lose nor gain, therefore, upon the whole transaction,

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and they would in this, as in all the foregoing cases, be exactly in the same situation as
if there was no seignorage.

When the tax upon a commodity is so moderate as not to encourage smuggling, the
merchant who deals in it, though he advances, does not properly pay the tax, as he gets
it back in the price of the commodity. The tax is finally paid by the last purchaser or
consumer. But money is a commodity, with regard to which every man is a merchant.
Nobody buys it but in order to sell it again; and with regard to it there is, in ordinary
cases, no last purchaser or consumer. When the tax upon coinage, therefore, is so
moderate as not to encourage false coining, though every body advances the tax,
nobody finally pays it; because every body gets it back in the advanced value of the
coin.

A moderate seignorage, therefore, would not, in any case, augment the expense of
the bank, or of any other private persons who carry their bullion to the mint in order
to be coined; and the want of a moderate seignorage does not in any case diminish it.
Whether there is or is not a seignorage, if the currency contains its full standard weight,
the coinage costs nothing to anybody; and if it is short of that weight, the coinage must
always cost the difference between the quantity of bullion which ought to be contained
in it, and that which actually is contained in it.

The government, therefore, when it defrays the expense of coinage, not only incurs
some small expense, but loses some small revenue which it might get by a proper duty;
and neither the bank, nor any other private persons, are in the smallest degree benefited
by this useless piece of public generosity.

The directors of the bank, however, would probably be unwilling to agree to the
imposition of a seignorage upon the authority of a speculation which promises them
no gain, but only pretends to insure them from any loss. In the present state of the
gold coin, and as long as it continues to be received by weight, they certainly would
gain nothing by such a change. But if the custom of weighing the gold coin should ever
go into disuse, as it is very likely to do, and if the gold coin should ever fall into the
same state of degradation in which it was before the late recoinage, the gain, or more
properly the savings, of the bank, inconsequence of the imposition of a seignorage,
would probably be very considerable. The bank of England is the only company which
sends any considerable quantity of bullion to the mint, and the burden of the annual
coinage falls entirely, or almost entirely, upon it. If this annual coinage had nothing to
do but to repair the unavoidable losses and necessary wear and tear of the coin, it could
seldom exceed fifty thousand, or at most a hundred thousand pounds. But when the
coin is degraded below its standard weight, the annual coinage must, besides this, fill up
the large vacuities which exportation and the melting pot are continually making in the
current coin. It was upon this account, that during the ten or twelve years immediately
preceding the late reformation of the gold coin, the annual coinage amounted, at an
average, to more than £850,000. But if there had been a seignorage of four or five per
cent. upon the gold coin, it would probably, even in the state in which things then were,
have put an effectual stop to the business both of exportation and of the melting pot.

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The bank, instead of losing every year about two and a half per cent. upon the bullion
which was to be coined into more than eight hundred and fifty thousand pounds,
or incurring an annual loss of more than £21,250 pounds, would not probably have
incurred the tenth part of that loss.

The revenue allotted by parliament for defraying the expense of the coinage is but
fourteen thousand pounds a-year; and the real expense which it costs the government,
or the fees of the officers of the mint, do not, upon ordinary occasions, I am assured,
exceed the half of that sum. The saving of so very small a sum, or even the gaining of
another, which could not well be much larger, are objects too inconsiderable, it may be
thought, to deserve the serious attention of government. But the saving of eighteen
ot twenty thousand pounds a-year, in case of an event which is not improbable, which
has frequently happened before, and which is very likely to happen again, is surely an
object which well deserves the serious attention, even of so great a company as the
bank of England.

Some of the foregoing reasonings and observations might, perhaps, have been
more properly placed in those chapters of the first book which treat of the origin
and use of money, and of the difference between the real and the nominal price of
commodities. But as the law for the encouragement of coinage derives its origin from
those vulgar prejudices which have been introduced by the mercantile system, I judged
it more proper to reserve them for this chapter. Nothing could be more agreeable to
the spirit of that system than a sort of bounty upon the production of money, the very
thing which, it supposes, constitutes the wealth of every nation. It is one of its many
admirable expedients for enriching the country.

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CHAPTER VII.
OF COLONIES.

PART I.
Of the Motives for Establishing New Colonies.

he interest which occasioned the first settlement of the different European
colonies in America and the West Indies, was not altogether so plain and distinct
as that which directed the establishment of those of ancient Greece and Rome.

All the different states of ancient Greece possessed, each of them, but a very small
territory; and when the people in anyone of them multiplied beyond what that territory
could easily maintain, a part of them were sent in quest of a new habitation, in some
remote and distant part of the world; the warlike neighbours who surrounded them
on all sides, rendering it difficult for any of them to enlarge very much its territory at
home. The colonies of the Dorians resorted chiefly to Italy and Sicily, which, in the
times preceding the foundation of Rome, were inhabited by barbarous and uncivilized
nations; those of the Ionians and Aecolians, the two other great tribes of the Greeks,
to Asia Minor and the islands of the Aegean sea, of which the inhabitants sewn at that
time to have been pretty much in the same state as those of Sicily and Italy. The mother
city, though she considered the colony as a child, at all times entitled to great favour
and assistance, and owing in return much gratitude and respect, yet considered it as an
emancipated child, over whom she pretended to claim no direct authority or jurisdiction.
The colony settled its own form of government, enacted its own laws, elected its own
magistrates, and made peace or war with its neighbours, as an independent state, which
had no occasion to wait for the approbation or consent of the mother city. Nothing can
be more plain and distinct than the interest which directed every such establishment.

Rome, like most of the other ancient republics, was originally founded upon an
agrarian law, which divided the public territory, in a certain proportion, among the
different citizens who composed the state. The course of human affairs, by marriage, by
succession, and by alienation, necessarily deranged this original division, and frequently
threw the lands which had been allotted for the maintenance of many different
families, into the possession of a single person. To remedy this disorder, for such it was
supposed to be, a law was made, restricting the quantity of land which any citizen could

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possess to five hundred jugera; about 350 English acres. This law, however, though we
tread of its having been executed upon one of two occasions, was either neglected or
evaded, and the inequality of fortunes went on continually increasing, The greater part
of the citizens had no land; and without it the manners and customs of those times
rendered it difficult for a freeman to maintain his independency. In the present times,
though a poor man has no land of his own, if he has a little stock, he may either farm
the lands of another, or he may carry on some little retail trade; and if he has no stock,
he may find employment either as a country labourer, or as an artificer. But among
the ancient Romans, the lands of the rich were all cultivated by slaves, who wrought
under an overseer, who was likewise a slave; so that a poor freeman had little chance of
being employed either as a farmer or as a labourer. All trades and manufactures, too,
even the retail trade, were carried on by the slaves of the rich for the benefit of their
masters, whose wealth, authority, and protection, made it difficult for a poor freeman
to maintain the competition against them. The citizens, therefore, who had no land,
had scarce any other means of subsistence but the bounties of the candidates at the
annual elections. The tribunes, when they had a mind to animate the people against the
rich and the great, put them in mind of the ancient divisions of lands, and represented
that law which restricted this sort of private property as the fundamental law of the
republic. The people became clamorous to get land, and the rich and the great, we may
believe, were perfectly determined not to give them any part of theirs. To satisfy them
in some measure, therefore, they frequently proposed to send out a new colony. But
conquering Rome was, even upon such occasions, under no necessity of turning out her
citizens to seek their fortune, if one may so, through the wide world, without knowing
where they were to settle. She assigned them lands generally in the conquered provinces
of Italy, where, being within the dominions of the republic, they could never form any
independent state, but were at best but a sort of corporation, which, though it had
the power of enacting bye-laws for its own government, was at all times subject to the
correction, jurisdiction, and legislative authority of the mother city. The sending out a
colony of this kind not only gave some satisfaction to the people, but often established
a sort of garrison, too, in a newly conquered province, of which the obedience might
otherwise have been doubtful. A Roman colony, therefore, whether we consider the
nature of the establishment itself, or the motives for making it, was altogether different
from a Greek one. The words, accordingly, which in the original languages denote
those different establishments, have very different meanings. The Latin word (colonia)
signifies simply a plantation. The Greek word (apotxia), on the contrary, signifies a
separation of dwelling, a departure from home, a going out of the house. But though
the Roman colonies were, in many respects, different from the Greek ones, the interest
which prompted to establish them was equally plain and distinct. Both institutions
derived their origin, either from irresistible necessity, or from clear and evident utility.
The establishment of the European colonies in America and the West Indies
arose from no necessity; and though the utility which has resulted from them has been
very great, it is not altogether so clear and evident. It was not understood at their

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first establishment, and was not the motive, either of that establishment, or of the
discoveries which gave occasion to it; and the nature, extent, and limits of that utility,
are not, perhaps, well understood at this day.

The Venetians, during the fourteenth and fifteenth centuries, carried on a very
advantageous commerce in spiceries and other East India goods, which they distributed
among the other nations of Europe. They purchased them chiefly in Egypt, at that
time under the dominion of the Mamelukes, the enemies of the Turks, of whom the
Venetians were the enemies; and this union of interest, assisted by the money of Venice,
formed such a connexion as gave the Venetians almost a monopoly of the trade.

The great profits of the Venetians tempted the avidity of the Portuguese. They
had been endeavouring, during the course of the fifteenth century, to find out by sea a
way to the countries from which the Moors brought them ivory and gold dust across
the desert. They discovered the Madeiras, the Canaries, the Azores, the Cape de Verd
islands, the coast of Guinea, that of Loango, Congo, Angola, and Benguela, and,
finally, the Cape of Good Hope. They had long wished to share in the profitable traffic
of the Venetians, and this last discovery opened to them a probable prospect of doing
so. In 1497, Vasco de Gamo sailed from the port of Lisbon with a fleet of four ships,
and, after a navigation of eleven months, arrived upon the coast of Indostan; and thus
completed a course of discoveries which had been pursued with great steadiness, and
with very little interruption, for near a century together.

Some years before this, while the expectations of Europe were in suspense about
the projects of the Portuguese, of which the success appeared yet to be doubtful, a
Genoese pilot formed the yet more daring project of sailing to the East Indies by
the west. The situation of those countries was at that time very imperfectly known in
Europe. The few European travellers who had been there, had magnified the distance,
perhaps through simplicity and ignorance; what was really very great, appearing almost
infinite to those who could not measure it; or, perhaps, in order to increase somewhat
more the marvellous of their own adventures in visiting regions so immensely remote
from Europe. The longer the way was by the east, Columbus very justly concluded, the
shorter it would be by the west. He proposed, therefore, to take that way, as both the
shortest and the surest, and he had the good fortune to convince Isabella of Castile of
the probability of his project. He sailed from the port of Palos in August 1492, near
five years before the expedition of Vasco de Gamo set out from Portugal; and, after a
voyage of between two and three months, discovered first some of the small Bahama
or Lucyan islands, and afterwards the great island of St. Domingo.

But the countries which Columbus discovered, either in this or in any of his
subsequent voyages, had no resemblance to those which he had gone in quest of. Instead
of the wealth, cultivation, and populousness of China and Indostan, he found, in St.
Domingo, and in all the other parts of the new world which he ever visited, nothing
but a country quite covered with wood, uncultivated, and inhabited only by some tribes
of naked and miserable savages. He was not very willing, however, to believe that
they were not the same with some of the countries described by Marco Polo, the first

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European who had visited, or at least had left behind him any description of China or
the East Indies; and a very slight resemblance, such as that which he found between the
name of Cibao, a mountain in St. Domingo, and that of Cipange, mentioned by Marco
Polo, was frequently sufficient to make him return to this favourite prepossession,
though contrary to the clearest evidence. In his letters to Ferdinand and Isabella, he
called the countries which he had discovered the Indies. He entertained no doubt but
that they were the extremity of those which had been described by Marco Polo, and
that they were not very distant from the Ganges, or from the countries which had
been conquered by Alexander. Even when at last convinced that they were different,
he still flattered himself that those rich countries were at no great distance; and in a
subsequent voyage, accordingly, went in quest of them along the coast of Terra Firma,
and towards the Isthmus of Darien.

In consequence of this mistake of Columbus, the name of the Indies has stuck to
those unfortunate countries ever since; and when it was at last clearly discovered that
the new were altogether different from the old Indies, the former were called the West,
in contradistinction to the latter, which were called the East Indies.

It was of importance to Columbus, however, that the countries which he had
discovered, whatever they were, should be represented to the court of Spain as of very
great consequence; and, in what constitutes the real riches of every country, the animal
and vegetable productions of the soil, there was at that time nothing which could well
justify such a representation of them.

The cori, something between a rat and a rabbit, and supposed by Mr Buffon to
be the same with the aperea of Brazil, was the largest viviparous quadruped in St.
Domingo. This species seems never to have been very numerous; and the dogs and cats
of the Spaniards are said to have long ago almost entirely extirpated it, as well as some
other tribes of a still smaller size. These, however, together with a pretty large lizard,
called the ivana or iguana, constituted the principal part of the animal food which the
land afforded.

The vegetable food of the inhabitants, though, from their want of industry, not
very abundant, was not altogether so scanty. It consisted in Indian corn, yams, potatoes,
bananas, etc., plants which were then altogether unknown in Europe, and which have
never since been very much esteemed in it, or supposed to yield a sustenance equal to
what is drawn from the common sorts of grain and pulse, which have been cultivated
in this part of the world time out of mind.

The cotton plant, indeed, afforded the material of a very important manufacture,
and was at that time, to Europeans, undoubtedly the most valuable of all the vegetable
productions of those islands. But though, in the end of the fitteenth century, the
muslins and other cotton goods of the East Indies were much esteemed in every part
of Europe, the cotton manufacture itself was not cultivated in any part of it. Even this
production, therefore, could not at that time appear in the eyes of Europeans to be of
very great consequence.

Finding nothing, either in the animals or vegetables of the newly discovered

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countries which could justify a very advantageous representation of them, Columbus
tutned his view towards their minerals; and in the richness of their productions of
this third kingdom, he flattered himself he had found a full compensation for the
insignificancy of those of the other two. The little bits of gold with which the
inhabitants ornamented their dress, and which, he was informed, they frequently found
in the rivulets and torrents which fell from the mountains, were sufficient to satisfy him
that those mountains abounded with the richest gold mines. St. Domingo, therefore,
was represented as a country abounding with gold, and upon that account (according
to the prejudices not only of the present times, but of those times), an inexhaustible
source of real wealth to the crown and kingdom of Spain. When Columbus, upon his
return from his first voyage, was introduced with a sort of triumphal honours to the
sovereigns of Castile and Arragon, the principal productions of the countries which he
had discovered were carried in solemn procession before him. The only valuable part
of them consisted in some little fillets, bracelets, and other ornaments of gold, and
in some bales of cotton. The rest were mere objects of vulgar wonder and curiosity;
some reeds of. an extraordinary size, some birds of a very beautiful plumage, and some
stuffed skins of the huge alligator and manati; all of which were preceded by six or
seven of the wretched natives, whose singular colour and appearance added greatly to
the novelty of the show.

In consequence of the representations of Columbus, the council of Castile
determined to take possession of the countries of which the inhabitants were plainly
incapable of defending themselves. The pious purpose of converting them to
Christianity sanctified the injustice of the project. But the hope of finding treasures of
gold there was the sole motive which prompted to undertake it; and to give this motive
the greater weight, it was proposed by Columbus, that the half of all the gold and silver
that should be found there, should belong to the crown. This proposal was approved
of by the council.

As long as the whole, or the greater part of the gold which the first adventurers
imported into Europe was got by so very easy a method as the plundering of the
defenceless natives, it was not perhaps very difficult to pay even this heavy tax; but
when the natives were once fairly stript of all that they had, which, in St. Domingo,
and in all the other countries discovered by Columbus, was done completely in six or
eight years, and when, in order to find more, it had become necessary to dig for it in
the mines, there was no longer any possibility of paying this tax. The rigorous exaction
of it, accordingly, first occasioned, it is said, the total abandoning of the mines of St.
Domingo, which have never been wrought since. It was soon reduced, therefore, to a
third; then to a fifth; afterwards to a tenth; and at last to a twentieth part of the gross
produce of the gold mines. The tax upon silver continued for a long time to be a
fifth of the gross produce. It was reduced to a tenth only in the course of the present
century. But the first adventurers do not appear to have been much interested about
silver. Nothing less precious than gold seemed worthy of their attention.

All the other enterprizes of the Spaniards in the New World, subsequent to those

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of Columbus, seem to have been prompted by the same motive. It was the sacred thirst
of gold that carried Ovieda, Nicuessa, and Vasco Nugnes de Balboa, to the Isthmus of
Darien; that carried Cortes to Mexico, Almagro and Pizarro to Chili and Peru. When
those adventurers arrived upon any unknown coast, their first inquiry was always if
there was any gold to be found there; and according to the information which they
received concerning this particular, they determined either to quit the country or to
settle in it.

Of all those expensive and uncertain projects, however, which bring bankruptcy
upon the greater part of the people who engage in them, there is none, perhaps, more
perfectly ruinous than the search after new silver and gold mines. It is, perhaps, the
most disadvantageous lottery in the world, or the one in which the gain of those who
draw the prizes bears the least proportion to the loss of those who draw the blanks;
for though the prizes are few, and the blanks many, the common price of a ticket is the
whole fortune of a very rich man. Projects of mining, instead of replacing the capital
employed in them, together with the ordinary profits of stock, commonly absorb both
capital and profit. They are the projects, therefore, to which, of all others, a prudent
lawgiver, who desired to increase the capital of his nation, would least choose to give
any extraordinary encouragement, or to turn towards them a greater share of that
capital than what would go to them of its own accord. Such, in reality, is the absurd
confidence which almost all men have in their own good fortune, that wherever there
is the least probability of success, too great a share of it is apt to go to them of its own
accord.

But though the judgment of sober reason and experience concerning such projects
has always been extremely unfavourable, that of human avidity has commonly been
quite otherwise. The same passion which has suggested to so many people the absurd
idea of the philosophet’s stone, has suggested to others the equally absurd one of
immense rich mines of gold and silver. They did not consider that the value of those
metals has, in all ages and nations, arisen chiefly from their scarcity, and that their
scarcity has arisen from the very small quantities of them which nature has anywhere
deposited in one place, from the hard and intractable substances with which she has
almost everywhere surrounded those small quantities, and consequently from the
labour and expense which are everywhere necessary in order to penetrate, and get
at them. They flattered themselves that veins of those metals might in many places
be found, as large and as abundant as those which are commonly found of lead, or
copper, or tin, or iron. The dream of Sir Waiter Raleigh, concerning the golden city
and country of El Dorado, may satisfy us, that even wise men are not always exempt
from such strange delusions. More than a hundred years after the death of that great
man, the Jesuit Gumila was still convinced of the reality of that wonderful country,
and expressed, with great warmth, and, I dare say, with great sincerity, how happy he
should be to carry the light of the gospel to a people who could so well reward the
pious labours of their missionary.

In the countries first discovered by the Spaniards, no gold and silver mines are at

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present known which are supposed to be worth the working, The quantities of those
metals which the first adventurers are said to have found there, had probably been very
much magnified, as well as the fertility of the mines which were wrought immediately
after the first discovery. What those adventurers were reported to have found, however,
was sufficient to inflame the avidity of all their countrymen. Every Spaniard who sailed
to America expected to find an El Dorado. Fortune, too, did upon this what she has
done upon very few other occasions. She realized in some measure the extravagant
hopes of her votaries; and in the discovery and conquest of Mexico and Peru (of
which the one happened about thirty, and the other about forty, years after the first
expedition of Columbus), she presented them with something not very unlike that
profusion of the precious metals which they sought for.

A project of commerce to the East Indies, therefore, gave occasion to the first
discovery of the West. A project of conquest gave occasion to all the establishments of
the Spaniards in those newly discovered countries. The motive which excited them to
this conquest was a project of gold and silver mines; and a course of accidents which
no human wisdom could foresee, rendered this project much more successful than the
undertakers had any reasonable grounds for expecting.

The first adventurers of all the other nations of Europe who attempted to make
settlements in America, were animated by the like chimerical views; but they were
not equally successful. It was more than a hundred years after the first settlement of
the Brazils, before any silver, gold, or diamond mines, were discovered there. In the
English, French, Dutch, and Danish colonies, none have ever yet been discovered,
at least none that are at present supposed to be worth the working. The first English
settlers in North America, however, offered a fifth of all the gold and silver which
should be found there to the king, as a motive for granting them their patents. In the
patents of Sir Waiter Raleigh, to the London and Plymouth companies, to the council
of Plymouth, etc. this fifth was accordingly reserved to the crown. To the expectation
of finding gold and silver mines, those first settlers, too, joined that of discovering a
north-west passage to the Hast Indies. They have hitherto been disappointed in both.

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PART II.

Causes of the Prosperity of New Colonies.

The colony of a civilized nation which takes possession either of a waste country,
or of one so thinly inhabited that the natives easily give place to the new settlers,
advances more rapidly to wealth and greatness than any other human society.

The colonies carry out with them a knowledge of agriculture and of other useful
arts, superior to what can grow up of its own accord, in the course of many centuries,
among savage and barbarous nations. They carry out with them, too, the habit of
subordination, some notion of the regular government which takes place in their own
country, of the system of laws which support it, and of a regular administration of
justice; and they naturally establish something of the same kind in the new settlement.
But among savage and barbarous nations, the natural progress of law and government
is still slower than the natural progress of arts, after law and government have been so
far established as is necessary for their protection. Every colonist gets more land than
he can possibly cultivate. He has no rent, and scarce any taxes, to pay. No landlord
shares with him in its produce, and, the share of the sovereign is commonly but a
trifle. He has every motive to render as great as possible a produce which is thus to
be almost entirely his own. But his land is commonly so extensive, that, with all his
own industry, and with all the industry of other people whom he can get to employ,
he can seldom make it produce the tenth part of what it is capable of producing. He
is eager, therefore, to collect labourers from all quarters, and to reward them with the
most liberal wages. But those liberal wages, joined to the plenty and cheapness of land,
soon make those labourers leave him, in order to become landlords themselves, and to
reward with equal liberality other labourers, who soon leave them for the same reason
that they left their first master. The liberal reward of labour encourages marriage. The
children, during the tender years of infancy, are well fed and properly taken care of; and
when they are grown up, the value of their labour greatly overpays their maintenance.
When arrived at maturity, the high price of labour, and the low price of land, enable
them to establish themselves in the same manner as their fathers did before them.

In other countries, rent and profit eat up wages, and the two superior orders of
people oppress the inferior one; but in new colonies, the interest of the two superior
orders obliges them to treat the inferior one with more generosity and humanity, at
least where that inferior one is not in a state of slavery. Waste lands, of the greatest
natural fertility, are to be had for a trifle. The increase of revenue which the proprietor,
who is always the undertaker, expects from their improvement, constitutes his profit,
which, in these circumstances, is commonly very great; but this great profit cannot be
made, without employing the labour of other people in clearing and cultivating the

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land; and the disproportion between the great extent of the land and the small number
of the people, which commonly takes place in new colonies, makes it difficult for him
to get this labour. He does not, therefore, dispute about wages, but is willing to employ
labour at any price. The high wages of labour encourage population. The cheapness
and plenty of good land encourage improvement, and enable the proprietor to pay
those high wages. In those wages consists almost the whole price of the land; and
though they are high, considered as the wages of labour, they are low, considered as
the price of what is so very valuable. What encourages the progress of population and
improvement, encourages that of real wealth and greatness.

The progress of many of the ancient Greek colonies towards wealth and greatness
seems accordingly to have been very rapid. In the course of a century or two, several
of them appear to have rivalled, and even to have surpassed, their mother cities.
Syracuse and Agrigentum in Sicily, Tarentum and Locri in Italy, Ephesus and Miletus in
Lesser Asia, appear, by all accounts, to have been at least equal to any of the cities of
ancient Greece. Though posterior in their establishment, yet all the arts of refinement,
philosophy, poetry, and eloquence, seem to have been cultivated as early, and to have
been improved as highly in them as in any part of the mother country. The schools of
the two oldest Greek philosophers, those of Thales and Pythagoras, were established,
it is remarkable, not in ancient Greece, but the one in an Asiatic, the other in an Italian
colony. All those colonies had established themselves in countries inhabited by savage
and barbarous nations, who easily gave place to the new settlers. They had plenty of
good land; and as they were altogether independent of the mother city, they were at
liberty to manage their own affairs in the way that they judged was most suitable to
their own interest.

The history of the Roman colonies is by no means so brilliant. Some of them,
indeed, such as Florence, have, in the course of many ages, and after the fall of the
mother city, grown up to be considerable states. But the progress of no one of them
seems ever to have been very rapid. They were all established in conquered provinces,
which in most cases had been fully inhabited before. The quantity of land assigned to
each colonist was seldom very considerable, and, as the colony was not independent,
they were not always at liberty to manage their own affairs in the way that they judged
was most suitable to their own interest.

In the plenty of good land, the European colonies established in America and
the West Indies resemble, and even greatly surpass, those of ancient Greece. In their
dependency upon the mother state, they resemble those of ancient Rome; but their
great distance from Europe has in all of them alleviated more or less the effects of
this dependency. Their situation has placed them less in the view, and less in the power
of their mother country. In pursuing their interest their own way, their conduct has
upon many occasions been overlooked, either because not known or not understood
in Europe; and upon some occasions it has been fairly suffered and submitted to,
because their distance rendered it difficult to restrain it. Even the violent and arbitrary
government of Spain has, upon many occasions, been obliged to recall or soften the

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orders which had been given for the government of her colonies, for fear of a general
insurrection. The progress of all the European colonies in wealth, population, and
improvement, has accordingly been very great.

The crown of Spain, by its share of the gold and silver, derived some revenue
from its colonies from the moment of their first establishment. It was a revenue, too,
of a nature to excite in human avidity the most extravagant expectation of still greater
tiches. The Spanish colonies, therefore, from the moment of their first establishment,
attracted very much the attention of their mother country; while those of the other
European nations were for a long time in a great measure neglected. The former did
not, perhaps, thrive the better in consequence of this attention, nor the latter the worse
in consequence of this neglect. In proportion to the extent of the country which they
in some measure possess, the Spanish colonies are considered as less populous and
thriving than those of almost any other European nation. The progress even of the
Spanish colonies, however, in population and improvement, has certainly been very
rapid and very great. The city of Lima, founded since the conquest, is represented
by Ulloa as containing fifty thousand inhabitants near thirty years ago. Quito, which
had been but a miserable hamlet of Indians, is represented by the same author as in
his time equally populous. Gemel i Carreri, a pretended traveller, it is said, indeed, but
who seems everywhere to have written upon extreme good information, represents
the city of Mexico as containing a hundred thousand inhabitants; a number which,
in spite of all the exaggerations of the Spanish writers, is probably more than five
times greater than what it contained in the time of Montezuma. These numbers exceed
ereatly those of Boston, New York, and Philadelphia, the three greatest cities of the
English colonies. Before the conquest of the Spaniards, there were no cattle fit for
draught, either in Mexico or Peru. The lama was their only beast of burden, and its
strength seems to have been a good deal inferior to that of a common ass. The plough
was unknown among them. They were ignorant of the use of iron. They had no coined
money, nor any established instrument of commerce of any kind. Their commerce
was carried on by barter. A sort of wooden spade was their principal instrument of
agriculture. Sharp stones served them for knives and hatchets to cut with; fish bones,
and the hard sinews of certain animals, served them with needles to sew with; and these
seem to have been their principal instruments of trade. In this state of things, it seems
impossible that either of those empires could have been so much improved or so well
cultivated as at present, when they are plentifully furnished with all sorts of European
cattle, and when the use of iron, of the plough, and of many of the arts of Europe,
have been introduced among them. But the populousness of every country must be
in proportion to the degree of its improvement and cultivation. In spite of the cruel
destruction of the natives which followed the conquest, these two great empires are
probably more populous now than they ever were before; and the people are surely
very different; for we must acknowledge, I apprehend, that the Spanish creoles are in
many respects superior to the ancient Indians.

After the settlements of the Spaniards, that of the Portuguese in Brazil is the oldest

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of any European nation in America. But as for a long time after the first discovery
neither gold nor silver mines were found in it, and as it afforded upon that account
little or no revenue to the crown, it was for a long time in a great measure neglected;
and during this state of neglect, it grew up to be a great and powerful colony. While
Portugal was under the dominion of Spain, Brazil was attacked by the Dutch, who got
possession of seven of the fourteen provinces into which it is divided. They expected
soon to conquer the other seven, when Portugal recovered its independency by the
elevation of the family of Braganza to the throne. The Dutch, then, as enemies to
the Spaniards, became friends to the Portuguese, who were likewise the enemies of
the Spaniards. They agreed, therefore, to leave that part of Brazil which they had
not conquered to the king of Portugal, who agreed to leave that part which they had
conquered to them, as a matter not worth disputing about, with such good allies. But
the Dutch government soon began to oppress the Portuguese colonists, who, instead
of amusing themselves with complaints, took arms against their new masters, and by
their own valour and resolution, with the connivance, indeed, but without any avowed
assistance from the mother country, drove them out of Brazil. The Dutch, therefore,
finding it impossible to keep any part of the country to themselves, were contented
that it should be entirely restored to the crown of Portugal. In this colony there are said
to be more than six hundred thousand people, either Portuguese or descended from
Portuguese, creoles, mulattoes, and a mixed race between Portuguese and Brazilians.
No one colony in America is supposed to contain so great a number of people of
European extraction.

Towards the end of the fifteenth, and during the greater part of the sixteenth century,
Spain and Portugal were the two great naval powers upon the ocean; for though the
commerce of Venice extended to every part of Europe, its fleet had scarce ever sailed
beyond the Mediterranean. The Spaniards, in virtue of the first discovery, claimed all
America as their own; and though they could not hinder so great a naval power as that
of Portugal from settling in Brazil, such was at that time the terror of their name, that
the greater part of the other nations of Europe were afraid to establish themselves in
any other part of that great continent. The French, who attempted to settle in Florida,
were all murdered by the Spaniards. But the declension of the naval power of this latter
nation, in consequence of the defeat or miscarriage of what they called their invincible
armada, which happened towards the end of the sixteenth century, put it out of their
power to obstruct any longer the settlements of the other European nations. In the
course of the seventeenth century, therefore, the English, French, Dutch, Danes, and
Swedes, all the great nations who had any ports upon the ocean, attempted to make
some settlements in the new world.

The Swedes established themselves in New Jersey; and the number of Swedish
families still to be found there sufficiently demonstrates, that this colony was very
likely to prosper, had it been protected by the mother country. But being neglected by
Sweden, it was soon swallowed up by the Dutch colony of New York, which again, in
1674, fell under the dominion of the English.

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The small islands of St. Thomas and Santa Cruz, are the only countries in the
new world that have ever been possessed by the Danes. These little settlements, too,
were under the government of an exclusive company, which had the sole right, both
of purchasing the surplus produce of the colonies, and of supplying them with such
goods of other countries as they wanted, and which, therefore, both in its purchases
and sales, had not only the power of oppressing them, but the greatest temptation to
do so. The government of an exclusive company of merchants is, perhaps, the worst of
all governments for any country whatever. It was not, however, able to stop altogether
the progress of these colonies, though it rendered it more slow and languid. The late
king of Denmark dissolved this company, and since that time the prosperity of these
colonies has been very great.

The Dutch settlements in the West, as well as those in the East Indies, were
originally put under the government of an exclusive company. The progress of
some of them, therefore, though it has been considerable in comparison with that
of almost any country that has been long peopled and established, has been languid
and slow in comparison with that of the greater part of new colonies. The colony
of Surinam, though very considerable, is still inferior to the greater part of the sugar
colonies of the other European nations. The colony of Nova Belgia, now divided into
the two provinces of New York and New Jersey, would probably have soon become
considerable too, even though it had remained under the government of the Dutch.
The plenty and cheapness of good land are such powerful causes of prosperity, that
the very worst government is scarce capable of checking altogether the efficacy of their
operation. The great distance, too, from the mother country, would enable the colonists
to evade more or less, by smuggling, the monopoly which the company enjoyed against
them. At present, the company allows all Dutch ships to trade to Surinam, upon paying
two and a-half per cent. upon the value of their cargo for a license; and only reserves
to itself exclusively, the direct trade from Africa to America, which consists almost
entirely in the slave trade. This relaxation in the exclusive privileges of the company, is
probably the principal cause of that degree of prosperity which that colony at present
enjoys. Curacoa and Eustatia, the two principal islands belonging to the Dutch, are itee
ports, open to the ships of all nations; and this freedom, in the midst of better colonies,
whose ports are open to those of one nation only, has been the great cause of the
prosperity of those two barren islands.

The French colony of Canada was, during the greater part of the last century, and
some part of the present, under the government of an exclusive company. Under so
unfavourable an administration, its progress was necessarily very slow, in comparison
with that of other new colonies; but it became much more rapid when this company
was dissolved, after the fall of what is called the Mississippi scheme. When the English
got possession of this country, they found in it near double the number of inhabitants
which father Charlevoix had assigned to it between twenty and thirty years before. That
jesuit had travelled over the whole country, and had no inclination to represent it as less

inconsiderable than it really was.

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The French colony of St. Domingo was established by pirates and freebooters,
who, for a long time, neither required the protection, nor acknowledged the authority
of France; and when that race of banditti became so far citizens as to acknowledge
this authority, it was for a long time necessary to exercise it with very great gentleness.
During this period, the population and improvement of this colony increased very fast.
Even the oppression of the exclusive company, to which it was for some time subjected
with all the other colonies of France, though it no doubt retarded, had not been able
to stop its progress altogether. The course of its prosperity returned as soon as it was
relieved from that oppression. It is now the most important of the sugar colonies
of the West Indies, and its produce is said to be greater than that of all the English
sugar colonies put together. The other sugar colonies of France are in general all very
thriving.

But there are no colonies of which the progress has been more rapid than that of
the English in North America.

Plenty of good land, and liberty to manage their own affairs their own way, seem
to be the two great causes of the prosperity of all new colonies.

In the plenty of good land, the English colonies of North America, chetiok no
doubt very abundantly provided, are, however, inferior to those of the Spaniards and
Portuguese, and not superior to some of those possessed by the French before the late
war. But the political institutions of the English colonies have been more favourable
to the improvement and cultivation of this land, than those of the other three nations.

First, The engrossing of uncultivated land, though it has by no means been
prevented altogether, has been mote restrained in the English colonies than in any other.
The colony law, which imposes upon every proprietor the obligation of improving and
cultivating, within a limited time, a certain proportion of his lands, and which, in case
of failure, declares those neglected lands grantable to any other person; though it has
not perhaps been very strictly executed, has, however, had some effect.

Secondly, In Pennsylvania there is no tight of primogeniture, and lands, like
moveables, are divided equally among all the children of the family. In three of the
provinces of New England, the oldest has only a double share, as in the Mosaical law.
Though in those provinces, therefore, too great a quantity of land should sometimes
be engrossed by a particular individual, it is likely, in the course of a generation or
two, to be sufficiently divided again. In the other English colonies, indeed, the right
of primogeniture takes place, as in the law of England: But in all the English colonies,
the tenure of the lands, which are all held by free soccage, facilitates alienation; and the
grantee of an extensive tract of land generally finds it for his interest to alienate, as fast
as he can, the greater part of it, reserving only a small quit-rent. In the Spanish and
Portuguese colonies, what is called the right of majorazzo takes place in the succession
of all those great estates to which any title of honour is annexed. Such estates go all
to one person, and are in effect entailed and unalienable. The French colonies, indeed,
are subject to the custom of Paris, which, in the inheritance of land, is much more
favourable to the younger children than the law of England. But, in the French colonies,

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if any part of an estate, held by the noble tenure of chivalry and homage, is alienated,
it is, for a limited time, subject to the right of redemption, either by the heir of the
superior, or by the heir of the family; and all the largest estates of the country are held
by such noble tenures, which necessarily embarrass alienation. But, in a new colony, a
great uncultivated estate is likely to be much mote speedily divided by alienation than
by succession. The plenty and cheapness of good land, it has already been observed,
are the principal causes of the rapid prosperity of new colonies. The engrossing of
land, in effect, destroys this plenty and cheapness. The engrossing of uncultivated land,
besides, is the greatest obstruction to its improvement; but the labour that is employed
in the improvement and cultivation of land affords the greatest and most valuable
produce to the society. The produce of labour, in this case, pays not only its own wages
and the profit of the stock which employs it, but the rent of the land too upon which
it is employed. The labour of the English colonies, therefore, being more employed in
the improvement and cultivation of land, is likely to afford a greater and more valuable
produce than that of any of the other three nations, which, by the engrossing of land,
is more or less diverted towards other employments.

Thirdly, The labour of the English colonists is not only likely to afford a greater
and more valuable produce, but, in consequence of the moderation of their taxes,
a greater proportion of this produce belongs to themselves, which they may store
up and employ in putting into motion a still greater quantity of labour. The English
colonists have never yet contributed any thing towards the defence of the mother
country, or towards the support of its civil government. They themselves, on the
contrary, have hitherto been defended almost entirely at the expense of the mother
country; but the expense of fleets and armies is out of all proportion greater than the
necessary expense of civil government. The expense of their own civil government has
always been very moderate. It has generally been confined to what was necessary for
paying competent salaries to the governor, to the judges, and to some other officers of
police, and for maintaining a few of the most useful public works. The expense of the
civil establishment of Massachusetts Bay, before the commencement of the present
disturbances, used to be but about £18;000 a-year; that of New Hampshire and Rhode
Island, £3500 each; that of Connecticut, £4000; that of New York and Pennsylvania,
£4500 each; that of New Jersey, £1200; that of Virginia and South Carolina, £8000
each. The civil establishments of Nova Scotia and Georgia are partly supported by an
annual grant of parliament; but Nova Scotia pays, besides, about £7000 a-year towards
the public expenses of the colony, and Georgia about £2500 a-year. All the difterent
civil establishments in North America, in short, exclusive of those of Maryland
and North Carolina, of which no exact account has been got, did not, before the
commencement of the present disturbances, cost the inhabitants about £64,700 a-year;
an ever memorable example, at how small an expense three millions of people may
not only be governed but well governed. The most important part of the expense of
government, indeed, that of defence and protection, has constantly fallen upon the
mother country. The ceremonial, too, of the civil government in the colonies, upon

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the reception of a new governor, upon the opening of a new assembly, etc. though
sufficiently decent, is not accompanied with any expensive pomp or parade. Their
ecclesiastical government is conducted upon a plan equally frugal. Tithes are unknown
among them; and their clergy, who are far from being numerous, are maintained either
by moderate stipends, or by the voluntary contributions of the people. The power
of Spain and Portugal, on the contrary, derives some support from the taxes levied
upon their colonies. France, indeed, has never drawn any considerable revenue from
its colonies, the taxes which it levies upon them being generally spent among them.
But the colony government of all these three nations is conducted upon a much more
extensive plan, and is accompanied with a much more expensive ceremonial. The sums
spent upon the reception of a new viceroy of Peru, for example, have frequently been
enormous. Such ceremonials are not only real taxes paid by the rich colonists upon
those particular occasions, but they serve to introduce among them the habit of vanity
and expense upon all other occasions. They are not only very grievous occasional taxes,
but they contribute to establish perpetual taxes, of the same kind, still more grievous;
the ruinous taxes of private luxury and extravagance. In the colonies of all those three
nations, too, the ecclesiastical government is extremely oppressive. Tithes take place in
all of them, and are levied with the utmost rigour in those of Spain and Portugal. All of
them, besides, are oppressed with a numerous race of mendicant friars, whose beggary
being not only licensed but consecrated by religion, is a most grievous tax upon the
poor people, who are most carefully taught that it is a duty to give, and a very great sin
to refuse them their charity. Over and above all this, the clergy are, in all of them, the
greatest engrossers of land.

Fourthly, In the disposal of their surplus produce, or of what is over and above
their own consumption, the English colonies have been more favoured, and have been
allowed a more extensive market, than those of any other European nation. Every
European nation has endeavoured, more or less, to monopolize to itself the commerce
of its colonies, and, upon that account, has prohibited the ships of foreign nations
from trading to them, and has prohibited them from importing European goods from
any foreign nation. But the manner in which this monopoly has been exercised in
different nations, has been very different.

Some nations have given up the whole commerce of their colonies to an exclusive
company, of whom the colonists were obliged to buy all such European goods as they
wanted, and to whom they were obliged to sell the whole of their surplus produce. It
was the interest of the company, therefore, not only to sell the former as dear, and to
buy the latter as cheap as possible, but to buy no more of the latter, even at this low
price, than what they could dispose of for a very high price in Europe. It was their
interest not only to degrade in all cases the value of the surplus produce of the colony,
but in many cases to discourage and keep down the natural increase of its quantity.
Of all the expedients that can well be contrived to stunt the natural growth of a new
colony, that of an exclusive company is undoubtedly the most effectual. This, however,
has been the policy of Holland, though their company, in the course of the present

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century, has given up in many respects the exertion of their exclusive privilege. This,
too, was the policy of Denmark, till the reign of the late king. It has occasionally been
the policy of France; and of late, since 1755, after it had been abandoned by all other
nations on account of its absurdity, it has become the policy of Portugal, with regard at
least to two of the principal provinces of Brazil, Pernambucco, and Marannon.

Other nations, without establishing an exclusive company, have confined the whole
commerce of their colonies to a particular port of the mother country, from whence
no ship was allowed to sail, but either in a fleet and at a particular season, or, if single,
in consequence of a particular license, which in most cases was very well paid for.
This policy opened, indeed, the trade of the colonies to all the natives of the mother
country, provided they traded from the proper port, at the proper season, and in the
proper vessels. But as all the different merchants, who joined their stocks in order to
fit out those licensed vessels, would find it for their interest to act in concert, the trade
which was carried on in this manner would necessarily be conducted very nearly upon
the same principles as that of an exclusive company. The profit of those merchants
would be almost equally exorbitant and oppressive. The colonies would be ill supplied,
and would be obliged both to buy very dear, and to sell very cheap. This, however,
till within these few years, had always been the policy of Spain; and the price of all
European goods, accordingly, is said to have been enormous in the Spanish West
Indies. At Quito, we are told by Ulloa, a pound of iron sold for about 4s:6d., and a
pound of steel for about 6s:9d. sterling. But it is chiefly in order to purchase European
goods that the colonies part with their own produce. The more, therefore, they pay for
the one, the less they really get for the other, and the dearness of the one is the same
thing with the cheapness of the other. The policy of Portugal is, in this respect, the
same as the ancient policy of Spain, with regard to all its colonies, except Pernambucco
and Marannon; and with regard to these it has lately adopted a still worse.

Other nations leave the trade of their colonies free to all their subjects, who may
carry it on from all the different ports of the mother country, and who have occasion
for no other license than the common despatches of the custom-house. In this case the
number and dispersed situation of the different traders renders it impossible for them
to enter into any general combination, and theit competition is sufficient to hinder
them from making very exorbitant profits. Under so liberal a policy, the colonies are
enabled both to sell their own produce, and to buy the goods of Europe at a reasonable
price; but since the dissolution of the Plymouth company, when our colonies were but
in their infancy, this has always been the policy of England. It has generally, too, been
that of France, and has been uniformly so since the dissolution of what in England
is commonly called their Mississippi company. The profits of the trade, therefore,
which France and England carry on with their colonies, though no doubt somewhat
higher than if the competition were free to all other nations, are, however, by no means
exorbitant; and the price of European goods, accordingly, is not extravagantly high in
the greater past of the colonies of either of those nations.

In the exportation of their own surplus produce, too, it is only with regard to

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certain commodities that the colonies of Great Britain are confined to the market
of the mother country. These commodities having been enumerated in the act of
navigation, and in some other subsequent acts, have upon that account been called
enumerated commodities. The rest are called non-enumerated, and may be exported
directly to other countries, provided it is in British or plantation ships, of which the
owners and three fourths of the mariners are British subjects.

Among the non-enumerated commodities ate some of the most important
productions of America and the West Indies, grain of all sorts, lumber, salt provisions,
fish, sugar, and rum.

Grain is naturally the first and principal object of the culture of all new colonies.
By allowing them a very extensive market for it, the law encourages them to extend
this culture much beyond the consumption of a thinly inhabited country, and thus to
provide beforehand an ample subsistence for a continually increasing population.

In a country quite covered with wood, where timber consequently is of little or no
value, the expense of clearing the ground is the principal obstacle to improvement. By
allowing the colonies a very extensive market for their lumber, the law endeavours to
facilitate improvement by raising the price of a commodity which would otherwise be
of little value, and thereby enabling them to make some profit of what would otherwise
be mere expense.

In a country neither half peopled nor half cultivated, cattle naturally multiply
beyond the consumption of the inhabitants, and are often, upon that account, of little
or no value. But it is necessary, it has already been shown, that the price of cattle should
bear a certain proportion to that of corn, before the greater part of the lands of any
country can be improved. By allowing to American cattle, in all shapes, dead and alive, a
very extensive market, the law endeavours to raise the value of a commodity, of which
the high price is so very essential to improvement. The good effects of this liberty,
however, must be somewhat diminished by the 4th of Geo. III. c. 15, which puts hides
and skins among the enumerated commodities, and thereby tends to reduce the value
of American cattle.

To increase the shipping and naval power of Great Britain by the extension of the
fisheries of our colonies, is an object which the legislature seems to have had almost
constantly in view. Those fisheries, upon this account, have had all the encouragement
which freedom can give them, and they have flourished accordingly. The New England
fishery, in particular, was, before the late disturbances, one of the most important,
perhaps, in the world. The whale fishery which, notwithstanding an extravagant bounty,
is in Great Britain carried on to so little purpose, that in the opinion of many people (
which I do not, however, pretend to warrant), the whole produce does not much exceed
the value of the bounties which are annually paid for it, is in New England carried on,
without any bounty, to a very great extent. Fish is one of the principal articles with
which the North Americans trade to Spain, Portugal, and the Mediterranean.

Sugar was originally an enumerated commodity, which could only be exported to
Great Britain; but in 1751, upon a representation of the sugat-planters, its exportation

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was permitted to all parts of the world. The restrictions, however, with which this
liberty was granted, joined to the high price of sugar in Great Britain, have tendered it
in a great measure ineffectual. Great Britain and her colonies still continue to be almost
the sole market for all sugar produced in the British plantations. Their consumption
increases so fast, that, though in consequence of the increasing improvement of
Jamaica, as well as of the ceded islands, the importation of sugar has increased very
greatly within these twenty years, the exportation to foreign countries is said to be not
much greater than before.

Rum is a very important article in the trade which the Americans carry on to the
coast of Africa, from which they bring back negro slaves in return.

If the whole surplus produce of America, in grain of all sorts, in salt provisions,
and in fish, had been put into the enumeration, and thereby forced into the market
of Great Britain, it would have interfered too much with the produce of the industry
of our own people. It was probably not so much from any regard to the interest of
America, as from a jealousy of this interference, that those important commodities
have not only been kept out of the enumeration, but that the importation into Great
Britain of all grain, except rice, and of all salt provisions, has, in the ordinary state of
the law, been prohibited.

The non-enumerated commodities could originally be exported to all parts of the
world. Lumber and rice having been once put into the enumeration, when they were
afterwards taken out of it, were confined, as to the European market, to the countries
that lie south of Cape Finisterre. By the 6th of George III. c. 52, all non-enumerated
commodities were subjected to the like restriction. The parts of Europe which lie
south of Cape Finisterre are not manufacturing countries, and we are less jealous of
the colony ships carrying home from them any manufactures which could interfere
with our own.

The enumerated commodities are of two sorts; first, such as are either the peculiar
produce of America, or as cannot be produced, or at least are not produced in the
mother country. Of this kind are molasses, coffee, cocoa-nuts, tobacco, pimento,
ginger, whalefins, raw silk, cotton, wool, beaver, and other peltry of America, indigo,
fustick, and other dyeing woods; secondly, such as are not the peculiar produce of
America, but which are, and may be produced in the mother country, though not in
such quantities as to supply the greater part of her demand, which is principally supplied
from foreign countries. Of this kind are all naval stores, masts, yards, and bowsprits, tar,
pitch, and turpentine, pig and bar iron, copper ore, hides and skins, pot and pearl ashes.
The largest importation of commodities of the first kind could not discourage the
growth, or interfere with the sale, of any part of the produce of the mother country.
By confining them to the home market, our merchants, it was expected, would not only
be enabled to buy them cheaper in the plantations, and consequently to sell them with
a better profit at home, but to establish between the plantations and foreign countries
an advantageous carrying trade, of which Great Britain was necessarily to be the centre
or emporium, as the European country into which those commodities were first to be

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imported. The importation of commodities of the second kind might be so managed
too, it was supposed, as to interfere, not with the sale of those of the same kind which
were produced at home, but with that of those which were imported from foreign
countries; because, by means of proper duties, they might be rendered always somewhat
dearer than the former, and yet a good deal cheaper than the latter. By confining such
commodities to the home market, therefore, it was proposed to discourage the produce,
not of Great Britain, but of some foreign countries with which the balance of trade
was believed to be unfavourable to Great Britain.

The prohibition of exporting from the colonies to any other country but Great
Britain, masts, yards, and bowsprits, tar, pitch, and turpentine, naturally tended to lower
the price of timber in the colonies, and consequently to increase the expense of clearing
their lands, the principal obstacle to their improvement. But about the beginning of
the present century, in 1703, the pitch and tar company of Sweden endeavoured to
raise the price of their commodities to Great Britain, by prohibiting their exportation,
except in their own ships, at their own price, and in such quantities as they thought
proper. In order to counteract this notable piece of mercantile policy, and to render
herself as much as possible independent, not only of Sweden, but of all the other
northern powers, Great Britain gave a bounty upon the importation of naval stores
from America; and the effect of this bounty was to raise the price of timber in America
much more than the confinement to the home market could lower it; and as both
regulations were enacted at the same time, their joint effect was rather to encourage
than to discourage the clearing of land in America.

Though pig and bar iron, too, have been put among the enumerated commodities,
yet as, when imported from America, they are exempted from considerable duties to
which they are subject when imported front any other country, the one part of the
regulation contributes more to encourage the erection of furnaces in America than the
other to discourage it. There is no manufacture which occasions so great a consumption
of wood as a furnace, or which can contribute so much to the clearing of a country
overgrown with it.

The tendency of some of these regulations to raise the value of timber in America,
and thereby to facilitate the clearing of the land, was neither, perhaps, intended nor
understood by the legislature. Though their beneficial effects, however, have been in
this respect accidental, they have not upon that account been less real.

The most perfect freedom of trade is permitted between the British colonies of
America and the West Indies, both in the enumerated and in the non-enumerated
commodities Those colonies are now become so populous and thriving, that each of
them finds in some of the others a great and extensive market for every part of its
produce. All of them taken together, they make a great internal market for the produce
of one another.

The liberality of England, however, towards the trade of her colonies, has been
confined chiefly to what concerns the market for their produce, either in its rude state,
or in what may be called the very first stage of manufacture. The more advanced or more

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refined manufactures, even of the colony produce, the merchants and manufacturers
of Great Britain chuse to reserve to themselves, and have prevailed upon the legislature
to prevent their establishment in the colonies, sometimes by high duties, and sometimes
by absolute prohibitions.

While, for example, Muscovado sugars from the British plantations pay, upon
importation, only 6s:4d. the hundred weight, white sugars pay £/1:1:1; and refined, either
double or single, in loaves, £4:2:5 8/20ths. When those high duties were imposed,
Great Britain was the sole, and she still continues to be, the principal market, to which
the sugars of the British colonies could be exported. They amounted, therefore, to a
prohibition, at first of claying or refining sugar for any foreign market, and at present of
claying or refining it for the market which takes off, perhaps, more than nine-tenths of
the whole produce. The manufacture of claying or refining sugar, accordingly, though
it has flourished in all the sugar colonies of France, has been little cultivated in any of
those of England, except for the market of the colonies themselves. While Grenada
was in the hands of the French, there was a refinery of sugar, by claying, at least upon
almost every plantation. Since it fell into those of the English, almost all works of
this kind have been given up; and there are at present (October 1773), I am assured,
not above two or three remaining in the island. At present, however, by an indulgence
of the custom-house, clayed or refined sugar, if reduced from loaves into powder, is
commonly imported as Muscovado.

While Great Britain encourages in America the manufacturing of pig and bar
iron, by exempting them from duties to which the like commodities are subject when
imported from any other country, she imposes an absolute prohibition upon the
erection of steel furnaces and slit-mills in any of her American plantations. She will
not suffer her colonies to work in those more refined manufactures, even for their own
consumption; but insists upon their purchasing of her merchants and manufacturers
all goods of this kind which they have occasion for.

She prohibits the exportation from one province to another by water, and even the
carriage by land upon horseback, or in a cart, of hats, of wools, and woollen goods,
of the produce of America; a regulation which effectually prevents the establishment
of any manufacture of such commodities for distant sale, and confines the industry
of her colonists in this way to such coarse and household manufactures as a private
family commonly makes for its own use, or for that of some of its neighbours in the
same province.

To prohibit a great people, however, from making all that they can of every part
of their own produce, or from employing their stock and industry in the way that
they judge most advantageous to themselves, is a manifest violation of the most
sacred rights of mankind. Unjust, however, as such prohibitions may be, they have not
hitherto been very hurtful to the colonies. Land is still so cheap, and, consequently,
labour so dear among them, that they can import from the mother country almost all
the more refined or more advanced manufactures cheaper than they could make them
for themselves. Though they had not, therefore, been prohibited from establishing

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such manufactures, yet, in their present state of improvement, a regard to their own
interest would probably have prevented them from doing so. In their present state
of improvement, those prohibitions, perhaps, without cramping their industry, or
restraining it from any employment to which it would have gone of its own accord, are
only impertinent badges of slavery imposed upon them, without any sufficient reason,
by the groundless jealousy of the merchants and manufacturers of the mother country.
In a more advanced state, they might be really oppressive and insupportable.

Great Britain, too, as she confines to her own market some of the most
important productions of the colonies, so, in compensation, she gives to some of
them an advantage in that market, sometimes by imposing higher duties upon the like
productions when imported from other countries, and sometimes by giving bounties
upon their importation from the colonies. In the first way, she gives an advantage in the
home market to the sugar, tobacco, and iron of her own colonies; and, in the second,
to their raw silk, to their hemp and flax, to their indigo, to their naval stores, and to
their building timber. This second way of encouraging the colony produce, by bounties
upon importation, is, so far as I have been able to learn, peculiar to Great Britain: the
first is not. Portugal does not content herself with imposing higher duties upon the
importation of tobacco from any other country, but prohibits it under the severest
penalties.

With regard to the importation of goods from Europe, England has likewise dealt
more liberally with her colonies than any other nation.

Great Britain allows a part, almost always the half, generally a larger portion, and
sometimes the whole, of the duty which is paid upon the importation of foreign goods,
to be drawn back upon their exportation to any foreign country. No independent foreign
country, it was easy to foresee, would recetve them, if they came to it loaded with
the heavy duties to which almost all foreign goods are subjected on their importation
into Great Britain. Unless, therefore, some part of those duties was drawn back upon
exportation, there was an end of the carrying trade; a trade so much favoured by the
mercantile system.

Our colonies, however, are by no means independent foreign countries; and Great
Britain having assumed to herself the exclusive right of supplying them with all goods
from Europe, might have forced them (in the same manner as other countries have
done their colonies) to receive such goods loaded with all the same duties which they
paid in the mother country. But, on the contrary, till 1763, the same drawbacks were
paid upon the exportation of the greater part of foreign goods to our colonies, as to
any independent foreign country. In 1763, indeed, by the 4th of Geo. III. c. 15, this
indulgence was a good deal abated, and it was enacted, “That no part of the duty
called the old subsidy should be drawn back for any goods of the growth, production,
or manufacture of Europe or the Hast Indies, which should be exported from this
kingdom to any British colony or plantation in America; wines, white calicoes, and
muslins, excepted.” Before this law, many different sorts of foreign goods might have
been bought cheaper in the plantations than in the mother country, and some may still.

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Of the greater part of the regulations concerning the colony trade, the merchants
who carry it on, it must be observed, have been the principal advisers. We must not
wonder, therefore, if, in a great part of them, their interest has been more considered
than either that of the colonies or that of the mother country. In their exclusive privilege
of supplying the colonies with all the goods which they wanted from Europe, and of
purchasing all such parts of their surplus produce as could not interfere with any of
the trades which they themselves carried on at home, the interest of the colonies was
sacrificed to the interest of those merchants. In allowing the same drawbacks upon the
re-exportation of the greater part of European and East India goods to the colonies,
as upon their re-exportation to any independent country, the interest of the mother
country was sacrificed to it, even according to the mercantile ideas of that interest. It
was for the interest of the merchants to pay as little as possible for the foreign goods
which they sent to the colonies, and, consequently, to get back as much as possible of
the duties which they advanced upon their importation into Great Britain. They might
thereby be enabled to sell in the colonies, either the same quantity of goods with a
greater profit, or a greater quantity with the same profit, and, consequently, to gain
something either in the one way or the other. It was likewise for the interest of the
colonies to get all such goods as cheap, and in as great abundance as possible. But this
might not always be for the interest of the mother country. She might frequently suffer,
both in her revenue, by giving back a great part of the duties which had been paid upon
the importation of such goods; and in her manufactures, by being undersold in the
colony market, in consequence of the easy terms upon which foreign manufactures
could be carried thither by means of those drawbacks. The progress of the linen
manufacture of Great Britain, it is commonly said, has been a good deal retarded by
the drawbacks upon the re-exportation of German linen to the American colonies.

But though the policy of Great Britain, with regard to the trade of her colonies,
has been dictated by the same mercantile spirit as that of other nations, it has, however,
upon the whole, been less illiberal and oppressive than that of any of them.

In every thing except their foreign trade, the liberty of the English colonists to
manage their own affairs their own way, is complete. It is in every respect equal to that
of their fellow-citizens at home, and is secured in the same manner, by an assembly
of the representatives of the people, who claim the sole right of imposing taxes for
the support of the colony government. The authority of this assembly overawes the
executive power; and neither the meanest nor the most obnoxious colonist, as long as
he obeys the law, has any thing to fear from the resentment, either of the governor, or
of any other civil or military officer in the province. The colony assemblies, though,
like the house of commons in England, they are not always a very equal representation
of the people, yet they approach more nearly to that character; and as the executive
power either has not the means to corrupt them, or, on account of the support which
it receives from the mother country, is not under the necessity of doing so, they are,
perhaps, in general more influenced by the inclinations of their constituents. The
councils, which, in the colony legislatures, correspond to the house of lords in Great

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Britain, are not composed of a hereditary nobility. In some of the colonies, as in three
of the governments of New England, those councils are not appointed by the king, but
chosen by the representatives of the people. In none of the English colonies is there any
hereditary nobility. In all of them, indeed, as in all other free countries, the descendant
of an old colony family is more respected than an upstart of equal merit and fortune;
but he is only more respected, and he has no privileges by which he can be troublesome
to his neighbours. Before the commencement of the present disturbances, the colony
assemblies had not only the legislative, but a part of the executive power. In Connecticut
and Rhode Island, they elected the governor. In the other colonies, they appointed the
revenue officers, who collected the taxes imposed by those respective assemblies, to
whom those officers were immediately responsible. There is more equality, therefore,
among the English colonists than among the inhabitants of the mother country. Their
manners are more re publican; and their governments, those of three of the provinces
of New England in particular, have hitherto been more republican too.

The absolute governments of Spain, Portugal, and France, on the contrary, take
place in their colonies; and the discretionary powers which such governments commonly
delegate to all their inferior officers are, on account of the great distance, naturally
exercised there with more than ordinary violence. Under all absolute governments,
there is more liberty in the capital than in any other part of the country. The sovereign
himself can never have either interest or inclination to pervert the order of justice,
or to oppress the great body of the people. In the capital, his presence overawes,
more ot less, all his inferior officers, who, in the remoter provinces, from whence the
complaints of the people are less likely to reach him, can exercise their tyranny with
much more safety. But the European colonies in America are more remote than the
most distant provinces of the greatest empires which had ever been known before.
The government of the English colonies is, perhaps, the only one which, since the
world began, could give perfect security to the inhabitants of so very distant a province.
The administration of the French colonies, however, has always been conducted with
much more gentleness and moderation than that of the Spanish and Portuguese. This
superiority of conduct is suitable both to the character of the French nation, and to
what forms the character of every nation, the nature of their government, which,
though arbitrary and violent in comparison with that of Great Britain, is legal and free
in comparison with those of Spain and Portugal.

It is in the progress of the North American colonies, however, that the superiority
of the English policy chiefly appears. The progress of the sugar colonies of France has
been at least equal, perhaps superior, to that of the greater part of those of England;
and yet the sugar colonies of England enjoy a free government, nearly of the same
kind with that which takes place in her colonies of North America. But the sugar
colonies of France are not discouraged, like those of England, from refining their own
sugar; and what is still of greater importance, the genius of their government naturally
introduces a better management of their negro slaves.

In all European colonies, the culture of the sugar-cane is carried on by negro slaves.

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The constitution of those who have been born in the temperate climate of Europe
could not, it is supposed, support the labour of digging the ground under the burning
sun of the West Indies; and the culture of the sugat-cane, as it is managed at present, is
all hand labour; though, in the opinion of many, the drill plough might be introduced
into it with great advantage. But, as the profit and success of the cultivation which is
carried on by means of cattle, depend very much upon the good management of those
cattle; so the profit and success of that which is carried on by slaves must depend
equally upon the good management of those slaves; and in the good management
of their slaves the French planters, I think it is generally allowed, are superior to
the English. The law, so far as it gives some weak protection to the slave against the
violence of his master, is likely to be better executed in a colony where the government
is in a great measure arbitrary, than in one where it is altogether free. In ever country
where the unfortunate law of slavery is established, the magistrate, when he protects
the slave, intermeddles in some measure in the management of the private property
of the master; and, in a free country, where the master is, perhaps, either a member
of the colony assembly, or an elector of such a member, he dares not do this but with
the greatest caution and circumspection. The respect which he is obliged to pay to the
master, renders it more difficult for him to protect the slave. But in a country where
the government is in a great measure arbitrary, where it is usual for the magistrate to
intermeddle even in the management of the private property of individuals, and to
send them, perhaps, a lettre de cachet, if they do not manage it according to his liking,
it is much easier for him to give some protection to the slave; and common humanity
naturally disposes him to do so. The protection of the magistrate renders the slave less
contemptible in the eyes of his master, who is thereby induced to consider him with
more regard, and to treat him with more gentleness. Gentle usage renders the slave not
only mote faithful, but more intelligent, and, therefore, upon a double account, more
useful. He approaches more to the condition of a free servant, and may possess some
degree of integrity and attachment to his master’s interest; virtues which frequently
belong to free servants, but which never can belong to a slave, who is treated as slaves
commonly are in countries where the master is perfectly free and secure.

That the condition of a slave is better under an arbitrary than under a free
government, is, I believe, supported by the history of all ages and nations. In the Roman
history, the first time we read of the magistrate interposing to protect the slave from
the violence of his master, is under the emperors. When Vidius Pollio, in the presence
of Augustus, ordered one of his slaves, who had committed a slight fault, to be cut
into pieces and thrown into his fish-pond, in order to feed his fishes, the emperor
commanded him, with indignation, to emancipate immediately, not only that slave, but
all the others that belonged to him. Under the republic no magistrate could have had
authority enough to protect the slave, much less to punish the master.

The stock, it is to be observed, which has improved the sugar colonies of France,
particularly the great colony of St Domingo, has been raised almost entirely from the
gradual improvement and cultivation of those colonies. It has been almost altogether

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the produce of the soil and of the industry of the colonists, or, what comes to the
same thing, the price of that produce, gradually accumulated by good management,
and employed in raising a still greater produce. But the stock which has improved and
cultivated the sugar colonies of England, has, a great part of it, been sent out from
England, and has by no means been altogether the produce of the soil and industry of
the colonists. The prosperity of the English sugar colonies has been in a great measure
owing to the great riches of England, of which a part has overflowed, if one may say
so, upon these colonies. But the prosperity of the sugar colonies of France has been
entirely owing to the good conduct of the colonists, which must therefore have had
some superiority over that of the English; and this superiority has been remarked in
nothing so much as in the good management of their slaves.

Such have been the general outlines of the policy of the different European nations
with regard to their colonies.

The policy of Europe, therefore, has very little to boast of, either in the original
establishment, or, so far as concerns their internal government, in the subsequent
prosperity of the colonies of America.

Folly and injustice seem to have been the principles which presided over and
directed the first project of establishing those colonies; the folly of hunting after gold
and silver mines, and the injustice of coveting the possession of a country whose
harmless natives, far from having ever injured the people of Europe, had received the
first adventurers with every mark of kindness and hospitality.

The adventurers, indeed, who formed some of the latter establishments, joined to
the chimerical project of finding gold and silver mines, other motives more reasonable
and more laudable; but even these motives do very little honour to the policy of Europe.

The English puritans, restrained at home, fled for freedom to America, and
established there the four governments of New England. The English catholics,
treated with much greater injustice, established that of Maryland; the quakers, that
of Pennsylvania. The Portuguese Jews, persecuted by the inquisition, stript of their
fortunes, and banished to Brazil, introduced, by their example, some sort of order
and industry among the transported felons and strumpets by whom that colony was
originally peopled, and taught them the culture of the sugar-cane. Upon all these
different occasions, it was not the wisdom and policy, but the disorder and injustice of
the European governments, which peopled and cultivated America.

In effectuation some of the most important of these establishments, the different
governments of Europe had as little merit as in projecting them. The conquest of
Mexico was the project, not of the council of Spain, but of a governor of Cuba; and
it was effectuated by the spirit of the bold adventurer to whom it was entrusted, in
spite of every thing which that governor, who soon repented of having trusted such
a person, could do to thwart it. The conquerors of Chili and Peru, and of almost all
the other Spanish settlements upon the continent of America, carried out with them
no other public encouragement, but a general permission to make settlements and
conquests in the name of the king of Spain. Those adventures were all at the private

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ADAM SMITH

risk and expense of the adventurers. The government of Spain contributed scarce any
thing to any of them. That of England contributed as little towards effectuating the
establishment of some of its most important colonies in North America.

When those establishments were effectuated, and had become so considerable as
to attract the attention of the mother country, the first regulations which she made
with regard to them, had always in view to secure to herself the monopoly of their
commerce; to confine their market, and to enlarge her own at their expense, and,
consequently, rather to damp and discourage, than to quicken and forward the course
of their prosperity. In the different ways in which this monopoly has been exercised,
consists one of the most essential differences in the policy of the different European
nations with regard to their colonies. The best of them all, that of England, is only
somewhat less illiberal and oppressive than that of any of the rest.

In what way, therefore, has the policy of Europe contributed either to the first
establishment, or to the present grandeur of the colonies of America? In one way,
and in one way only, it has contributed a good deal. Magna virum mater! It bred and
formed the men who were capable of achieving such great actions, and of laying the
foundation of so great an empire; and there is no other quarter of the world; of which
the policy is capable of forming, or has ever actually, and in fact, formed such men. The
colonies owe to the policy of Europe the education and great views of their active and
enterprizing founders; and some of the greatest and most important of them, so far as
concerns their internal government, owe to it scarce anything else.

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PART III.

Of the Advantages which Europe has derived From the Discovery of America,
and from that of a Passage to the East Indies by the Cape of Good Hope.

Such are the advantages which the colonies of America have derived from the
policy of Europe.

What are those which Europe has derived from the discovery and colonization of
America?

Those advantages may be divided, first, into the general advantages which Europe,
considered as one great country, has derived from those great events; and, secondly,
into the particular advantages which each colonizing country has derived from the
colonies which particularly belong to it, in consequence of the authority or dominion
which it exercises over them.

The general advantages which Europe, considered as one great country, has derived
from the discovery and colonization of America, consist, first, in the increase of its
enjoyments; and, secondly, in the augmentation of its industry.

The surplus produce of America imported into Europe, furnishes the inhabitants
of this great continent with a variety of commodities which they could not otherwise
have possessed; some for conveniency and use, some for pleasure, and some for
ornament; and thereby contributes to increase their enjoyments.

The discovery and colonization of America, it will readily be allowed, have
contributed to augment the industry, first, of all the countries which trade to it
directly, such as Spain, Portugal, France, and England; and, secondly, of all those
which, without trading to it directly, send, through the medium of other countries,
goods to it of their own produce, such as Austrian Flanders, and some provinces of
Germany, which, through the medium of the countries before mentioned, send to it
a considerable quantity of linen and other goods. All such countries have evidently
gained a more extensive market for their surplus produce, and must consequently have
been encouraged to increase its quantity.

But that those great events should likewise have contributed to encourage the
industry of countries such as Hungary and Poland, which may never, perhaps, have
sent a single commodity of their own produce to America, is not, perhaps, altogether
so evident. That those events have done so, however, cannot be doubted. Some part
of the produce of America is consumed in Hungary and Poland, and there is some
demand there for the sugar, chocolate, and tobacco, of that new quarter of the world.
But those commodities must be purchased with something which is either the produce
of the industry of Hungary and Poland, or with something which had been purchased
with some part of that produce. Those commodities of Ametica are new values, new

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ADAM SMITH

equivalents, introduced into Hungary and Poland, to be exchanged there for the surplus
produce of these countries. By being carried thither, they create a new and more
extensive market for that surplus produce. They raise its value, and thereby contribute
to encourage its increase. Though no patt of it may ever be carried to Ametica, it may
be carried to other countries, which purchase it with a part of their share of the surplus
produce of America, and it may find a market by means of the circulation of that trade
which was originally put into motion by the surplus produce of America.

Those great events may even have contributed to increase the enjoyments, and
to augment the industry, of countries which not only never sent any commodities to
America, but never received any from it. Even such countries may have received a
greater abundance of other commodities from countries, of which the surplus produce
had been augmented by means of the American trade. This greater abundance, as it
must necessarily have increased their enjoyments, so it must likewise have augmented
their industry. A greater number of new equivalents, of some kind or other, must have
been presented to them to be exchanged for the surplus produce of that industry. A
more extensive market must have been created for that surplus produce, so as to raise
its value, and thereby encourage its increase. The mass of commodities annually thrown
into the great circle of European commerce, and by its various revolutions annually
distributed among all the different nations comprehended within it, must have been
augmented by the whole surplus produce of America. A greater share of this greater
mass, therefore, is likely to have fallen to each of those nations, to have increased their
enjoyments, and augmented their industry.

The exclusive trade of the mother countries tends to diminish, or at least to keep
down below what they would otherwise rise to, both the enjoyments and industry of all
those nations in general, and of the American colonies in particular. It is a dead weight
upon the action of one of the great springs which puts into motion a great part of the
business of mankind. By rendering the colony produce dearer in all other countries, it
lessens its consumption, and thereby cramps the industry of the colonies, and both the
enjoyments and the industry of all other countries, which both enjoy less when they pay
more for what they enjoy, and produce less when they get less for what they produce.
By rendering the produce of all other countries dearer in the colonies, it cramps in
the same manner the industry of all other colonies, and both the enjoyments and the
industry of the colonies. It is a clog which, for the supposed benefit of some particular
countries, embarrasses the pleasures and encumbers the industry of all other countries,
but of the colonies more than of any other. It not only excludes as much as possible
all other countries from one particular market, but it confines as much as possible
the colonies to one particular market; and the difference is very great between being
excluded from one particular market when all others are open, and being confined to
one particular market when all others are shut up. The surplus produce of the colonies,
however, is the original source of all that increase of enjoyments and industry which
Europe derives from the discovery and colonization of America, and the exclusive
trade of the mother countries tends to render this source much less abundant than it

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otherwise would be.

The particular advantages which each colonizing country derives from the colonies
which particularly belong to it, are of two different kinds; first, those common
advantages which every empire derives from the provinces subject to its dominion;
and, secondly, those peculiar advantages which are supposed to result from provinces
of so very peculiar a nature as the European colonies of America.

The common advantages which every empire derives from the provinces subject to
its dominion consist, first, in the military force which they furnish for its defence; and,
secondly, in the revenue which they furnish for the support of its civil government.
The Roman colonies furnished occasionally both the one and the other. The Greek
colonies sometimes furnished a military force, but seldom any revenue. They seldom
acknowledged themselves subject to the dominion of the mother city. They were
generally her allies in war, but very seldom her subjects in peace.

The European colonies of America have never yet furnished any military force for
the defence of the mother country. The military force has never yet been sufficient for
their own defence; and in the different wars in which the mother countries have been
engaged, the defence of their colonies has generally occasioned a very considerable
distraction of the military force of those countries. In this respect, therefore, all the
European colonies have, without exception, been a cause rather of weakness than of
strength to their respective mother countries.

The colonies of Spain and Portugal only have contributed any revenue towards
the defence of the mother country, or the support of her civil government. The
taxes which have been levied upon those of other European nations, upon those of
England in particular, have seldom been equal to the expense laid out upon them in
time of peace, and never sufficient to defray that which they occasioned in time of war.
Such colonies, therefore, have been a source of expense, and not of revenue, to their
respective mother countries.

The advantages of such colonies to their respective mother countries, consist
altogether in those peculiar advantages which are supposed to result from provinces of
so very peculiar a nature as the European colonies of America; and the exclusive trade,
it is acknowledged, is the sole source of all those peculiar advantages.

In consequence of this exclusive trade, all that part of the surplus produce of
the English colonies, for example, which consists in what are called enumerated
commodities, can be sent to no other country but England. Other countries must
afterwards buy it of her. It must be cheaper, therefore, in England than it can be in any
other country, and must contribute more to increase the enjoyments of England than
those of any other country. It must likewise contribute more to encourage her industry.
For all those parts of her own surplus produce which England exchanges for those
enumerated commodities, she must get a better price than any other countries can get
for the like parts of theirs, when they exchange them for the same commodities. The
manufactures of England, for example, will purchase a greater quantity of the sugat
and tobacco of her own colonies than the like manufactures of other countries can

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purchase of that sugar and tobacco. So far, therefore, as the manufactures of England
and those of other countries are both to be exchanged for the sugar and tobacco of
the English colonies, this superiority of price gives an encouragement to the former
beyond what the latter can, in these circumstances, enjoy. The exclusive trade of the
colonies, therefore, as it diminishes, or at least keeps down below what they would
otherwise rise to, both the enjoyments and the industry of the countries which do not
possess it, so it gives an evident advantage to the countries which do possess it over
those other countries.

This advantage, however, will, perhaps, be found to be rather what may be called
a relative than an absolute advantage, and to give a superiority to the country which
enjoys it, rather by depressing the industry and produce of other countries, than by
raising those of that particular country above what they would naturally rise to in the
case of a free trade.

The tobacco of Maryland and Virginia, for example, by means of the monopoly
which England enjoys of it, certainly comes cheaper to England than it can do to
France to whom England commonly sells a considerable part of it. But had France
and all other European countries been at all times allowed a free trade to Maryland
and Virginia, the tobacco of those colonies might by this time have come cheaper
than it actually does, not only to all those other countries, but likewise to England. The
produce of tobacco, in consequence of a market so much mote extensive than any
which it has hitherto enjoyed, might, and probably would, by this time have been so
much increased as to reduce the profits of a tobacco plantation to their natural level
with those of a corn plantation, which it 1s supposed they are still somewhat above.
The price of tobacco might, and probably would, by this time have fallen somewhat
lower than it is at present. An equal quantity of the commodities, either of England
ot of those other countries, might have purchased in Maryland and Virginia a greater
quantity of tobacco than it can do at present, and consequently have been sold there
for so much a better price. So far as that weed, therefore, can, by its cheapness and
abundance, increase the enjoyments, or augment the industry, either of England or of
any other country, it would probably, in the case of a free trade, have produced both
these effects in somewhat a greater degree than it can do at present. England, indeed,
would not, in this case, have had any advantage over other countries. She might have
bought the tobacco of her colonies somewhat cheaper, and consequently have sold
some of her own commodities somewhat dearer, than she actually does; but she could
neither have bought the one cheaper, nor sold the other dearer, than any other country
might have done. She might, perhaps, have gained an absolute, but she would certainly
have lost a relative advantage.

In order, however, to obtain this relative advantage in the colony trade, in order to
execute the invidious and malignant project of excluding, as much as possible, other
nations from any share in it, England, there are very probable reasons for believing,
has not only sacrificed a part of the absolute advantage which she, as well as every
other nation, might have derived from that trade, but has subjected herself both to an

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absolute and to a relative disadvantage in almost every other branch of trade.

When, by the act of navigation, England assumed to herself the monopoly of
the colony trade, the foreign capitals which had before been employed in it, were
necessarily withdrawn from it. The English capital, which had before carried on but a
part of it, was now to carry on the whole. The capital which had before supplied the
colonies with but a part of the goods which they wanted from Europe, was now all
that was employed to supply them with the whole. But it could not supply them with
the whole; and the goods with which it did supply them were necessarily sold very
dear. The capital which had before bought but a part of the surplus produce of the
colonies, was now all that was employed to buy the whole. But it could not buy the
whole at any thing near the old price; and therefore, whatever it did buy, it necessarily
bought very cheap. But in an employment of capital, in which the merchant sold very
dear, and bought very cheap, the profit must have been very great, and much above
the ordinary level of profit in other branches of trade. This superiority of profit in the
colony trade could not fail to draw from other branches of trade a part of the capital
which had before been employed in them. But this revulsion of capital, as it must have
gradually increased the competition of capitals in the colony trade, so it must have
gradually diminished that competition in all those other branches of trade; as it must
have gradually lowered the profits of the one, so it must have gradually raised those
of the other, till the profits of all came to a new level, different from, and somewhat
higher, than that at which they had been before.

This double effect of drawing capital from all other trades, and of raising the rate
of profit somewhat higher than it otherwise would have been in all trades, was not
only produced by this monopoly upon its first establishment, but has continued to be
produced by it ever since.

First, This monopoly has been continually drawing capital from all other trades, to
be employed in that of the colonies.

Though the wealth of Great Britain has increased very much since the establishment
of the act of navigation, it certainly has not increased in the same proportion as that or
the colonies. But the foreign trade of every country naturally increases in proportion
to its wealth, its surplus produce in proportion to its whole produce; and Great Britain
having engrossed to herself almost the whole of what may be called the foreign trade
of the colonies, and her capital not having increased in the same proportion as the
extent of that trade, she could not carry it on without continually withdrawing from
other branches of trade some part of the capital which had before been employed
in them, as well as withholding from them a great deal more which would otherwise
have gone to them. Since the establishment of the act of navigation, accordingly, the
colony trade has been continually increasing, while many other branches of foreign
trade, particularly of that to other parts of Europe, have been continually decaying.
Our manufactures for foreign sale, instead of being suited, as before the act of
navigation, to the neighbouring market of Europe, or to the more distant one of the
countries which lie round the Mediterranean sea, have the greater part of them, been

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accommodated to the still more distant one of the colonies; to the market in which
they have the monopoly, rather than to that in which they have many competitors. The
causes of decay in other branches of foreign trade, which, by Sir Matthew Decker and
other writers, have been sought for in the excess and improper mode of taxation, in the
high price of labour, in the increase of luxury, etc. may all be found in the overgrowth
of the colony trade. The mercantile capital of Great Britain, though very great, yet not
being infinite, and though greatly increased since the act of navigation, yet not being
increased in the same proportion as the colony trade, that trade could not possibly be
carried on without withdrawing some part of that capital from other branches of trade,
nor consequently without some decay of those other branches.

England, it must be observed, was a great trading country, her mercantile capital
was very great, and likely to become still greater and greater every day, not only before
the act of navigation had established the monopoly of the corn trade, but before that
trade was very considerable. In the Dutch war, during the government of Cromwell,
her navy was superior to that of Holland; and in that which broke out in the beginning
of the reign of Charles IL, it was at least equal, perhaps superior to the united navies
of France and Holland. Its superiority, perhaps, would scarce appear greater in the
present times, at least if the Dutch navy were to bear the same proportion to the
Dutch commerce now which it did then. But this great naval power could not, in
either of those wars, be owing to the act of navigation. During the first of them,
the plan of that act had been but just formed; and though, before the breaking out
of the second, it had been fully enacted by legal authority, yet no part of it could
have had time to produce any considerable effect, and least of all that part which
established the exclusive trade to the colonies. Both the colonies and their trade were
inconsiderable then, in comparison of what they are how. The island of Jamaica was
an unwholesome desert, little inhabited, and less cultivated. New York and New Jersey
were in the possession of the Dutch, the half of St. Christophet’s in that of the French.
The island of Antigua, the two Carolinas, Pennsylvania, Georgia, and Nova Scotia,
were not planted. Virginia, Maryland, and New England were planted; and though they
were very thriving colonies, yet there was not perhaps at that time, either in Europe or
America, a single person who foresaw, or even suspected, the rapid progress which they
have since made in wealth, population, and improvement. The island of Barbadoes, in
short, was the only British colony of any consequence, of which the condition at that
time bore any resemblance to what it is at present. The trade of the colonies, of which
England, even for some time after the act of navigation, enjoyed but a part (for the
act of navigation was not very strictly executed till several years after it was enacted),
could not at that time be the cause of the great trade of England, nor of the great naval
power which was supported by that trade. The trade which at that time supported that
great naval power was the trade of Europe, and of the countries which lie round the
Mediterranean sea. But the share which Great Britain at present enjoys of that trade
could not support any such great naval power. Had the growing trade of the colonies
been left free to all nations, whatever share of it might have fallen to Great Britain,

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and a very considerable share would probably have fallen to her, must have been all an
addition to this great trade of which she was before in possession. In consequence of
the monopoly, the increase of the colony trade has not so much occasioned an addition
to the trade which Great Britain had before, as a total change in its direction.

Secondly, This monopoly has necessarily contributed to keep up the rate of profit,
in all the different branches of British trade, higher than it naturally would have been,
had all nations been allowed a free trade to the British colonies.

The monopoly of the colony trade, as it necessarily drew towards that trade a
greater proportion of the capital of Great Britain than what would have gone to it of
its own accord, so, by the expulsion of all foreign capitals, it necessarily reduced the
whole quantity of capital employed in that trade below what it naturally would have
been in the case of a free trade. But, by lessening the competition of capitals in that
branch of trade, it necessarily raised the rate of profit in that branch. By lessening, too,
the competition of British capitals in all other branches of trade, it necessarily raised
the rate of British profit in all those other branches. Whatever may have been, at any
particular period since the establishment of the act of navigation, the state or extent of
the mercantile capital of Great Britain, the monopoly of the colony trade must, during
the continuance of that state, have raised the ordinary rate of British profit higher than
it otherwise would have been, both in that and in all the other branches of British trade.
If, since the establishment of the act of navigation, the ordinary rate of British profit
has fallen considerably, as it certainly has, it must have fallen still lower, had not the
monopoly established by that act contributed to keep it up.

But whatever raises, in any country, the ordinary rate of profit higher than it
otherwise would be, necessarily subjects that country both to an absolute, and to a
relative disadvantage in every branch of trade of which she has not the monopoly.

It subjects her to an absolute disadvantage; because, in such branches of trade,
her merchants cannot get this greater profit without selling dearer than they otherwise
would do, both the goods of foreign countries which they import into their own, and
the goods of their own country which they export to foreign countries. Their own
country must both buy dearer and sell dearer; must both buy less, and sell less; must
both enjoy less and produce less, than she otherwise would do.

It subjects her to a relative disadvantage; because, in such branches of trade, it
sets other countries, which are not subject to the same absolute disadvantage, either
more above her or less below her, than they otherwise would be. It enables them both
to enjoy more and to produce more, in proportion to what she enjoys and produces.
It renders their superiority greater, or their inferiority less, than it otherwise would be.
By raising the price of her produce above what it otherwise would be, it enables the
merchants of other countries to undersell her in foreign markets, and thereby to justle
her out of almost all those branches of trade, of which she has not the monopoly.

Our merchants frequently complain of the high wages of British labour, as the
cause of their manufactures being undersold in foreign markets; but they are silent
about the high profits of stock. They complain of the extravagant gain of other people;

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ADAM SMITH

but they say nothing of their own. The high profits of British stock, however, may
contribute towards raising the price of British manufactures, in many cases, as much,
and in some perhaps more, than the high wages of British labour.

It is in this manner that the capital of Great Britain, one may justly say, has partly
been drawn and partly been driven from the greater part of the different branches of
trade of which she has not the monopoly; from the trade of Europe, in particular, and
from that of the countries which lie round the Mediterranean sea.

It has partly been drawn from those branches of trade, by the attraction of superior
profit in the colony trade, in consequence of the continual increase of that trade, and
of the continual insufficiency of the capital which had carried it on one year to carry
it on the next.

It has partly been driven from ie by the advantage which the high rate of profit
established in Great Britain gives to other countries, in all the different branches of
trade of which Great Britain has not the monopoly.

As the monopoly of the colony trade has drawn from those other branches a part
of the British capital, which would otherwise have been employed in them, so it has
forced into them many foreign capitals which would never have gone to them, had
they not been expelled from the colony trade. In those other branches of trade, it has
diminished the competition of British capitals, and thereby raised the rate of British
profit higher than it otherwise would have been. On the contrary, it has increased the
competition of foreign capitals, and thereby sunk the rate of foreign profit lower than
it otherwise would have been. Both in the one way and in the other, it must evidently
have subjected Great Britain to a relative disadvantage in all those other branches of
trade.

The colony trade, however, it may perhaps be said, is more advantageous to Great
Britain than any other; and the monopoly, by forcing into that trade a greater proportion
of the capital of Great Britain than what would otherwise have gone to it, has turned
that capital into an employment, more advantageous to the country than any other
which it could have found.

The most advantageous employment of any capital to the country to which it
belongs, is that which maintains there the greatest quantity of productive labour, and
increases the most the annual produce of the land and labour of that country. But
the quantity of productive labour which any capital employed in the foreign trade of
consumption can maintain, is exactly in proportion, it has been shown in the second
book, to the frequency of its returns. A capital of a thousand pounds, for example,
employed in a foreign trade of consumption, of which the returns are made regularly
once in the year, can keep in constant employment, in the country to which it belongs,
a quantity of productive labour, equal to what a thousand pounds can maintain there
for a year. If the returns are made twice or thrice in the year, it can keep in constant
employment a quantity of productive labour, equal to what two or three thousand
pounds can maintain there for a year. A foreign trade of consumption carried on with a
neighbouring, 1s, upon that account, in general, more advantageous than one carried on

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THE WEALTH OF NATIONS

with a distant country; and, for the same reason, a direct foreign trade of consumption,
as it has likewise been shown in the second book, is in general more advantageous than
a round-about one.

But the monopoly of the colony trade, so far as it has operated upon the employment
of the capital of Great Britain, has, in all cases, forced some part of it from a foreign
trade of consumption carried on with a neighbouring, to one carried on with a more
distant country, and in many cases from a direct foreign trade of consumption to a
round-about one.

First, The monopoly of the colony trade has, in all cases, forced some part of
the capital of Great Britain from a foreign trade of consumption carried on with a
neighbouring, to one carried on with a more distant country.

It has, in all cases, forced some part of that capital from the trade with Europe, and
with the countries which lie round the Mediterranean sea, to that with the more distant
regions of America and the West Indies; from which the returns are necessarily less
frequent, not only on account of the greater distance, but on account of the peculiar
circumstances of those countries. New colonies, it has already been observed, are always
understocked. Their capital is always much less than what they could employ with great
profit and advantage in the improvement and cultivation of their land. They have a
constant demand, therefore, for more capital than they have of their own; and, in order
to supply the deficiency of their own, they endeavour to borrow as much as they can
of the mother country, to whom they are, therefore, always in debt. The most common
way in which the colonies contract this debt, is not by borrowing upon bond of the rich
people of the mother country, though they sometimes do this too, but by running as
much in arrear to their correspondents, who supply them with goods from Europe, as
those correspondents will allow them. Their annual returns frequently do not amount
to more than a third, and sometimes not to so great a proportion of what they owe.
The whole capital, therefore, which their correspondents advance to them, is seldom
returned to Britain in less than three, and sometimes not in less than four or five years.
But a British capital of a thousand pounds, for example, which is returned to Great
Britain only once in five years, can keep in constant employment only one-fifth part of
the British industry which it could maintain, if the whole was returned once in the year;
and, instead of the quantity of industry which a thousand pounds could maintain for
a year, can keep in constant employment the quantity only which two hundred pounds
can maintain for a year. The planter, no doubt, by the high price which he pays for the
goods from Europe, by the interest upon the bills which he grants at distant dates, and
by the commission upon the renewal of those which he grants at near dates, makes up,
and probably more than makes up, all the loss which his correspondent can sustain by
this delay. But, though he make up the loss of his correspondent, he cannot make up
that of Great Britain. In a trade of which the returns are very distant, the profit of the
merchant may be as great or greater than in one in which they are very frequent and
near; but the advantage of the country in which he resides, the quantity of productive
labour constantly maintained there, the annual produce of the land and labour, must

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always be much less. That the returns of the trade to America, and still more those of
that to the West Indies, are, in general, not only more distant, but more irregular and
more uncertain, too, than those of the trade to any part of Europe, ot even of the
countries which lie round the Mediterranean sea, will teadily be allowed, I imagine, by
everybody who has any experience of those different branches of trade.

Secondly, The monopoly of the colony trade, has, in many cases, forced some
part of the capital of Great Britain from a direct foreign trade of consumption, into a
round-about one.

Among the enumerated commodities which can be sent to no other market
but Great Britain, there are several of which the quantity exceeds very much the
consumption of Great Britain, and of which, a part, therefore, must be exported to
other countries. But this cannot be done without forcing some part of the capital
of Great Britain into a round-about foreign trade of consumption. Maryland, and
Virginia, for example, send annually to Great Britain upwards of ninety-six thousand
hogsheads of tobacco, and the consumption of Great Britain is said not to exceed
fourteen thousand. Upwards of eighty-two thousand hogsheads, therefore, must be
exported to other countries, to France, to Holland, and, to the countries which lie
round the Baltic and Mediterranean seas. But that part of the capital of Great Britain
which brings those eighty-two thousand hogsheads to Great Britain, which re-exports
them from thence to those other countries, and which brings back from those other
countries to Great Britain either goods or money in return, is employed in a round-
about foreign trade of consumption; and is necessarily forced into this employment,
in order to dispose of this great surplus. If we would compute in how many years
the whole of this capital is likely to come back to Great Britain, we must add to the
distance of the American returns that of the returns from those other countries. If, in
the direct foreign trade of consumption which we carry on with America, the whole
capital employed frequently does not come back in less than three or four years, the
whole capital employed in this round-about one is not likely to come back in less than
four or five. If the one can keep in constant employment but a third or a fourth part of
the domestic industry which could be maintained by a capital returned once in the year,
the other can keep in constant employment but a fourth or a fifth part of that industry.
At some of the outports a credit is commonly given to those foreign correspondents
to whom they export them tobacco. At the port of London, indeed, it is commonly
sold for ready money: the rule is Weigh and pay. At the port of London, therefore, the
final returns of the whole round-about trade are more distant than the returns from
America, by the time only which the goods may lie unsold in the warehouse; where,
however, they may sometimes lie long enough. But, had not the colonies been confined
to the market of Great Britain for the sale of their tobacco, very little more of it would
probably have come to us than what was necessary for the home consumption. ane
goods which Great Britain purchases at present for her own consumption with the
great surplus of tobacco which she exports to other countries, she would, in this case,
probably have purchased with the immediate produce of her own industry, or with

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some part of her own manufactures. That produce, those manufactures, instead of
being almost entirely suited to one great market, as at present, would probably have
been fitted to a great number of smaller markets. Instead of one great round-about
foreign trade of consumption, Great Britain would probably have carried on a great
number of small direct foreign trades of the same kind. On account of the frequency
of the returns, a part, and probably but a small part, perhaps not above a third or a
fourth of the capital which at present carries on this great round-about trade, might
have been sufficient to carry on all those small direct ones; might have kept inconstant
employment an equal quantity of British industry; and have equally supported the
annual produce of the land and labour of Great Britain. All the purposes of this trade
being, in this manner, answered by a much smaller capital, there would have been a
large spare capital to apply to other purposes; to improve the lands, to increase the
manufactures, and to extend the commerce of Great Britain; to come into competition
at least with the other British capitals employed in all those different ways, to reduce
the rate of profit in them all, and thereby to give to Great Britain, in all of them, a
superiority over other countries, still greater than what she at present enjoys.

The monopoly of the colony trade, too, has forced some part of the capital of Great
Britain from all foreign trade of consumption to a carrying trade; and, consequently
from supporting more or less the industry of Great Britain, to be employed altogether
in supporting partly that of the colonies, and partly that of some other countries.

The goods, for example, which are annually purchased with the great surplus of
eighty-two thousand hogsheads of tobacco annually re-exported from Great Britain,
are not all consumed in Great Britain. Part of them, linen from Germany and Holland,
for example, is returned to the colonies for their particular consumption. But that
part of the capital of Great Britain which buys the tobacco with which this linen is
afterwards bought, is necessarily withdrawn from supporting the industry of Great
Britain, to be employed altogether in supporting, partly that of the colonies, and partly
that of the particular countries who pay for this tobacco with the produce of their own
industry.

The monopoly of the colony trade, besides, by forcing towards it a much greater
proportion of the capital of Great Britain than what would naturally have gone to
it, seems to have broken altogether that natural balance which would otherwise have
taken place among all the different branches of British industry. The industry of Great
Britain, instead of being accommodated to a great number of small markets, has been
principally suited to one great market. Her commerce, instead of running in a great
number of small channels, has been taught to run principally in one great channel.
But the whole system of her industry and commerce has thereby been rendered less
secure; the whole state of her body politic less healthful than it otherwise would have
been. In her present condition, Great Britain resembles one of those unwholesome
bodies in which some of the vital parts are overgrown, and which, upon that account,
are liable to many dangerous disorders, scarce incident to those in which all the parts
are more properly proportioned. A small stop in that great blood-vessel, which has

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been artificially swelled beyond its natural dimensions, and through which an unnatural
proportion of the industry and commerce of the country has been forced to citculate,
is very likely to bring on the most dangerous disorders upon the whole body politic. The
expectation of a rupture with the colonies, accordingly, has struck the people of Great
Britain with more terror than they ever felt for a Spanish armada, or a French invasion.
It was this terror, whether well or ill grounded, which rendered the repeal of the stamp
act, among the merchants at least, a popular measure. In the total exclusion from the
colony market, was it to last only for a few years, the greater part of our merchants used
to fancy that they foresaw an entire stop to their trade; the greater part of our master
manufacturers, the entire ruin of their business; and the greater part of our workmen,
an end of their employment. A rupture with any of our neighbours upon the continent,
though likely, too, to occasion some stop or interruption in the employments of some
of all these different orders of people, is foreseen, however, without any such general
emotion. The blood, of which the circulation is stopt in some of the smaller vessels,
easily disgorges itself into the greater, without occasioning any dangerous disorder;
but, when it is stopt in any of the greater vessels, convulsions, apoplexy, or death,
are the immediate and unavoidable consequences. If but one of those overgrown
manufactures, which, by means either of bounties or of the monopoly of the home
and colony markets, have been artificially raised up to any unnatural height, finds some
small stop or interruption in its employment, it frequently occasions a mutiny and
disorder alarming to government, and embarrassing even to the deliberations of the
legislature. How great, therefore, would be the disorder and confusion, it was thought,
which must necessarily be occasioned by a sudden and entire stop in the employment
of so great a proportion of our principal manufacturers?

Some moderate and gradual relaxation of the laws which give to Great Britain the
exclusive trade to the colonies, till it is rendered in a great measure free, seems to be the
only expedient which can, in all future times, deliver her from this danger; which can
enable her, or even force her, to withdraw some part of her capital from this overgrown
employment, and to turn it, though with less profit, towards other employments; and
which, by gradually diminishing one branch of her industry, and gradually increasing all
the rest, can, by degrees, restore all the different branches of it to that natural, healthful,
and proper proportion, which perfect liberty necessarily establishes, and which perfect
liberty can alone preserve. To open the colony trade all at once to all nations, might not
only occasion some transitory inconveniency, but a great permanent loss, to the greater
part of those whose industry or capital is at present engaged in it. The sudden loss of
the employment, even of the ships which import the eighty-two thousand hogsheads
of tobacco, which are over and above the consumption of Great Britain, might alone
be felt very sensibly. Such are the unfortunate effects of all the regulations of the
mercantile system. They not only introduce very dangerous disorders into the state of
the body politic, but disorders which it is often difficult to remedy, without occasioning,
for a time at least, still greater disorders. In what manner, therefore, the colony trade
ought gradually to be opened; what are the restraints which ought first, and what are

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those which ought last, to be taken away; or in what manner the natural system of
perfect liberty and justice ought gradually to be restored, we must leave to the wisdom
of future statesmen and legislators to determine.

Five different events, unforeseen and unthought of, have very fortunately concurred
to hinder Great Britain from feeling, so sensibly as it was generally expected she would,
the total exclusion which has now taken place for more than a year (from the first of
December 1774) from a very important branch of the colony trade, that of the twelve
associated provinces of North America. First, those colonies, in preparing themselves
for their non-importation agreement, drained Great Britain completely of all the
commodities which were fit for their market; secondly, the extra ordinary demand of
the Spanish flota has, this year, drained Germany and the north of many commodities,
linen in particular, which used to come into competition, even in the British market,
with the manufactures of Great Britain; thirdly, the peace between Russia and Turkey
has occasioned an extraordinary demand from the Turkey market, which, during the
distress of the country, and while a Russian fleet was cruizing in the Archipelago,
had been very poorly supplied; fourthly, the demand of the north of Europe for the
manufactures of Great Britain has been increasing from year to year, for some time
past; and, fifthly, the late partition, and consequential pacification of Poland, by opening
the market of that great country, have, this year, added an extraordinary demand from
thence to the increasing demand of the north. These events are all, except the fourth,
in their nature transitory and accidental; and the exclusion from so important a branch
of the colony trade, if unfortunately it should continue much longer, may still occasion
some degree of distress. This distress, however, as it will come on gradually, will be
felt much less severely than if it had come on all at once; and, in the mean time, the
industry and capital of the country may find a new employment and direction, so as to
prevent this distress from ever rising to any considerable height.

The monopoly of the colony trade, therefore, so far as it has turned towards that
trade a greater proportion of the capital of Great Britain than what would otherwise
have gone to it, has in all cases turned it, from a foreign trade of consumption with a
neighbouring, into one with a more distant country; in many cases from a direct foreign
trade of consumption into a round-about one; and, in some cases, from all foreign
trade of consumption into a carrying trade. It has, in all cases, therefore, turned it from
a direction in which it would have maintained a greater quantity of productive labour,
into one in which it can maintain a much smaller quantity. By suiting, besides, to one
particular market only, so great a part of the industry and commerce of Great Britain, it
has rendered the whole state of that industry and commerce more precarious and less
secure, than if their produce had been accommodated to a greater variety of markets.

We must carefully distinguish between the effects of the colony trade and those
of the monopoly of that trade. The former are always and necessarily beneficial; the
latter always and necessarily hurtful. But the former are so beneficial, that the colony
trade, though subject to a monopoly, and, notwithstanding the hurtful effects of that
monopoly, is still, upon the whole, beneficial, and greatly beneficial, though a good deal

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ADAM SMITH

less so than it otherwise would be.

The effect of the colony trade, in its natural and free state, is to open a great
though distant market, for such parts of the produce of British industry as may exceed
the demand of the markets nearer home, of those of Europe, and of the countries
which lie round the Mediterranean sea. In its natural and free state, the colony trade,
without drawing from those markets any part of the produce which had ever been sent
to them, encourages Great Britain to increase the surplus continually, by continually
presenting new equivalents to be exchanged for it. In its natural and free state, the
colony trade tends to increase the quantity of productive labour in Great Britain, but
without altering in any respect the direction of that which had been employed there
before. In the natural and free state of the colony trade, the competition of all other
nations would hinder the rate of profit from rising above the common level, either
in the new market, or in the new employment. The new market, without drawing any
thing from the old one, would create, if one may say so, a new produce for its own
supply; and that new produce would constitute a new capital for carrying on the new
employment, which, in the same manner, would draw nothing from the old one.

The monopoly of the colony trade, on the contrary, by excluding the competition
of other nations, and thereby raising the rate of profit, both in the new market and
in the new employment, draws produce from the old market, and capital from the
old employment. To augment our share of the colony trade beyond what it otherwise
would be, is the avowed purpose of the monopoly. If our share of that trade were to
be no greater with, than it would have been without the monopoly, there could have
been no reason for establishing the monopoly. But whatever forces into a branch of
trade, of which the returns are slower and more distant than those of the greater
part of other trades, a greater proportion of the capital of any country, than what
of its own accord would go to that branch, necessarily renders the whole quantity
of productive labour annually maintained there, the whole annual produce of the
land and labour of that country, less than they otherwise would be. It keeps down the
revenue of the inhabitants of that country below what it would naturally rise to, and
thereby diminishes their power of accumulation. It not only hinders, at all times, their
capital from maintaining so great a quantity of productive labour as it would otherwise
maintain, but it hinders it from increasing so fast as it would otherwise increase, and,
consequently, from maintaining a still greater quantity of productive labour.

The natural good effects of the colony trade, however, more than counterbalance
to Great Britain the bad effects of the monopoly; so that, monopoly and altogether,
that trade, even as it is carried on at present, is not only advantageous, but greatly
advantageous. The new market and the new employment which are opened by the
colony trade, ate of much greater extent than that portion of the old market and of
the old employment which is lost by the monopoly. The new produce and the new
capital which has been created, if one may say so, by the colony trade, maintain in
Great Britain a greater quantity of productive labour than what can have been thrown
out of employment by the revulsion of capital from other trades of which the returns

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are more frequent. If the colony trade, however, even as it is carried on at present, is
advantageous to Great Britain, it is not by means of the monopoly, but in spite of the
monopoly.

It is rather for the manufactured than for the rude produce of Europe, that
the colony trade opens a new market. Agriculture is the proper business of all new
colonies; a business which the cheapness of land renders more advantageous than any
other. They abound, therefore, in the rude produce of land; and instead of importing
it from other countries, they have generally a large surplus to export. In new colonies,
agriculture either draws hands from all other employments, or keeps them from going
to any other employment. There are few hands to spare for the necessary, and none for
the ornamental manufactures. The greater part of the manufactures of both kinds they
find it cheaper to purchase of other countries than to make for themselves. It is chiefly
by encouraging the manufactures of Europe, that the colony trade indirectly encourages
its agriculture. The manufacturers of Europe, to whom that trade gives employment,
constitute a new market for the produce of the land, and the most advantageous of all
markets; the home market for the corn and cattle, for the bread and butchet’s meat of
Europe, is thus greatly extended by means of the trade to America.

But that the monopoly of the trade of populous and thriving colonies is not alone
sufficient to establish, or even to maintain, manufactures in any country, the examples
of Spain and Portugal sufficiently demonstrate. Spain and Portugal were manufacturing
countries before they had any considerable colonies. Since they had the richest and
most fertile in the world, they have both ceased to be so.

In Spain and Portugal, the bad effects of the monopoly, aggravated by other causes,
have, perhaps, nearly overbalanced the natural good effects of the colony trade. These
causes seem to be other monopolies of different kinds: the degradation of the value
of gold and silver below what it is in most other countries; the exclusion from foreign
markets by improper taxes upon exportation, and the narrowing of the home market,
by still more improper taxes upon the transportation of goods from one part of the
country to another; but above all, that irregular and partial administration of justice
which often protects the rich and powerful debtor from the pursuit of his injured
creditor, and which makes the industrious part of the nation afraid to prepare goods
for the consumption of those haughty and great men, to whom they dare not refuse to
sell upon credit, and from whom they are altogether uncertain of repayment.

In England, on the contrary, the natural good effects of the colony trade, assisted
by other causes, have in a great measure conquered the bad effects of the monopoly.
These causes seem to be, the general liberty of trade, which, notwithstanding some
restraints, is at least equal, perhaps superior, to what it is in any other country; the
liberty of exporting, duty free, almost all sorts of goods which are the produce of
domestic industry, to almost any foreign country; and what, perhaps, is of still greater
importance, the unbounded liberty of transporting them from one part of our own
country to any other, without being obliged to give any account to any public office,
without being liable to question or examination of any kind; but, above all, that equal

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and impartial administration of justice, which renders the rights of the meanest British
subject respectable to the greatest, and which, by securing to every man the fruits of
his own industry, gives the greatest and most effectual encouragement to every sort of
industry. .

If the manufactures of Great Britain, however, have been advanced, as they
certainly have, by the colony trade, it has not been by means of the monopoly of
that trade, but in spite of the monopoly. The effect of the monopoly has been, not to
augment the quantity, but to alter the quality and shape of a part of the manufactures
of Great Britain, and to accommodate to a market, from which the returns are slow
and distant, what would otherwise have been accommodated to one from which the
returns are frequent and near. Its effect has consequently been, to turn a part of the
capital of Great Britain from an employment in which it would have maintained a
greater quantity of manufacturing industry, to one in which it maintains a much smaller,
and thereby to diminish, instead of increasing, the whole quantity of manufacturing
industry maintained in Great Britain.

The monopoly of the colony trade, therefore, like all the other mean and malignant
expedients of the mercantile system, depresses the industry of all other countries,
but chiefly that of the colonies, without in the least increasing, but on the contrary
diminishing, that of the country in whose favour it is established.

The monopoly hinders the capital of that country, whatever may, at any particular
time, be the extent of that capital, from maintaining so great a quantity of productive
labour as it would otherwise maintain, and from affording so great a revenue to the
industrious inhabitants as it would otherwise afford. But as capital can be increased
only by savings from revenue, the monopoly, by hindering it from affording so great a
revenue as it would otherwise afford, necessarily hinders it from increasing so fast as it
would otherwise increase, and consequently from maintaining a still greater quantity of
productive labour, and affording a still greater revenue to the industrious inhabitants of
that country. One great original source of revenue, therefore, the wages of labour, the
monopoly must necessarily have rendered, at all times, less abundant than it otherwise
would have been.

By raising the rate of mercantile profit, the monopoly discourages the improvement
of land. The profit of improvement depends upon the difference between what the
land actually produces, and what, by the application of a certain capital, it can be made
to produce. If this difference affords a greater profit than what can be drawn from an
equal capital in any mercantile employment, the improvement of land will draw capital
from all mercantile employments. If the profit is less, mercantile employments will
draw capital from the improvement of land. Whatever, therefore, raises the rate of
mercantile profit, either lessens the superiority, or increases the inferiority of the profit
of improvement: and, in the one case, hinders capital from going to improvement, and
in the other draws capital from it; but by discouraging improvement, the monopoly
necessarily retards the natural increase of another great original source of revenue,
the rent of land. By raising the rate of profit, too, the monopoly necessarily keeps

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up the market rate of interest higher than it otherwise would be. But the price of
land, in proportion to the rent which it affords, the number of years purchase which
is commonly paid for it, necessarily falls as the rate of interest rises, and rises as the
rate of interest falls. The monopoly, therefore, hurts the interest of the landlord two
different ways, by retarding the natural increase, first, of his rent, and, secondly, of the
ptice which he would get for his land, in proportion to the rent which it affords.

The monopoly, indeed, raises the rate of mercantile profit and thereby augments
somewhat the gain of our merchants. But as it obstructs the natural increase of capital,
it tends rather to diminish than to increase the sum total of the revenue which the
inhabitants of the country derive from the profits of stock; a small profit upon a great
capital generally affording a greater revenue than a great profit upon a small one. The
monopoly raises the rate of profit, but it hinders the sum of profit from rising so high
as it otherwise would do.

All the original sources of revenue, the wages of labour, the rent of land, and the
profits of stock, the monopoly renders much less abundant than they otherwise would
be. To promote the little interest of one little order of men in one country, it hurts
the interest of all other orders of men in that country, and of all the men in all other
countries.

It is solely by raising the ordinary rate of profit, that the monopoly either has proved,
ot could prove, advantageous to any one particular order of men. But besides all the
bad effects to the country in general, which have already been mentioned as necessarily
resulting from a higher rate of profit, there is one more fatal, perhaps, than all these put
together, but which, if we may judge from experience, is inseparably connected with
it. The high rate of profit seems everywhere to destroy that parsimony which, in other
circumstances, is natural to the character of the merchant. When profits are high, that
sober virtue seems to be superfluous, and expensive luxury to suit better the affluence
of his situation. But the owners of the great mercantile capitals are necessarily the
leaders and conductors of the whole industry of every nation; and their example has
a much greater influence upon the manners of the whole industrious part of it than
that of any other order of men. If his employer is attentive and parsimonious, the
workman is very likely to be so too; but if the master is dissolute and disorderly, the
servant, who shapes his work according to the pattern which his master prescribes to
him, will shape his life, too, according to the example which he sets him. Accumulation
is thus prevented in the hands of all those who are naturally the most disposed to
accumulate; and the funds destined for the maintenance of productive labour, receive
no augmentation from the revenue of those who ought naturally to augment them the
most. The capital of the country, instead of increasing, gradually dwindles away, and
the quantity of productive labour maintained in it grows every day less and less. Have
the exorbitant profits of the merchants of Cadiz and Lisbon augmented the capital of
Spain and PortugalP Have they alleviated the poverty, have they promoted the industry,
of those two beggarly countries? Such has been the tone of mercantile expense in
those two trading cities, that those exorbitant profits, far from augmenting the general

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capital of the country, seem scarce to have been sufficient to keep up the capitals upon
which they were made. Foreign capitals are every day intruding themselves, if I may
say SO, more and more into the trade of Cadiz and Lisbon. It is to expel those foreign
capitals from a trade which their own grows every day more and more insufficient
for carrying on, that the Spaniards and Portuguese endeavour every day to straiten
more and mote the galling bands of their absurd monopoly. Compare the mercantile
manners of Cadiz and Lisbon with those of Amsterdam, and you will be sensible how
differently the conduct and character of merchants are affected by the high and by
the low profits of stock. The merchants of London, indeed, have not yet generally
become such magnificent lords as those of Cadiz and Lisbon; but neither are they in
general such attetitive and parsimonious burghers as those of Amsterdam. They are
supposed, however, many of them, to be a good deal richer than the greater part of
the former, and not quite so rich as many of the latter: but the rate of their profit is
commonly much lower than that of the former, and a good deal higher than that of the
latter. Light come, light go, says the proverb; and the ordinary tone of expense seems
everywhere to be regulated, not so much according to the real ability of spending, as to
the supposed facility of getting money to spend.

It is thus that the single advantage which the monopoly procures to a single order
of men, is in many different ways hurtful to the general interest of the country.

To found a great empire for the sole purpose of raising up a people of customers,
may at first sight, appear a project fit only for a nation of shopkeepers. It is, however,
a project altogether unfit for a nation of shopkeepers, but extremely fit for a nation
whose government is influenced by shopkeepers. Such statesmen, and such statesmen
only, are capable of fancying that they will find some advantage in employing the blood
and treasure of their fellow-citizens, to found and maintain such an empire. Say to a
shopkeeper, Buy me a good estate, and I shall always buy my clothes at your shop, even
though I should pay somewhat dearer than what I can have them for at other shops;
and you will not find him very forward to embrace your proposal. But should any other
person buy you such an estate, the shopkeeper will be much obliged to your benefactor
if he would enjoin you to buy all your clothes at his shop. England purchased for
some of her subjects, who found themselves uneasy at home, a great estate in a distant
country. The price, indeed, was very small, and instead of thirty years purchase, the
ordinary price of land in the present times, it amounted to little more than the expense
of the different equipments which made the first discovery, reconnoitered the coast, and
took a fictitious possession of the country. The land was good, and of great extent; and
the cultivators having plenty of good ground to work upon, and being for some time
at liberty to sell their produce where they pleased, became, in the course of little more
than thirty or forty years (between 1620 and 1660), so numerous and thriving a people,
that the shopkeepers and other traders of England wished to secure to themselves the
monopoly of their custom. Without pretending, therefore, that they had paid any part,
either of the original purchase money, or of the subsequent expense of improvement,
they petitioned the parliament, that the cultivators of America might for the future be

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confined to their shop; first, for buying all the goods which they wanted from Europe;
and, secondly, for selling all such parts of their own produce as those traders might
find it convenient to buy. For they did not find it convenient to buy every part of it.
Some parts of it imported into England, might have interfered with some of the trades
which they themselves carried on at home. Those particular parts of it, therefore, they
were willing that the colonists should sell where they could; the farther off the better;
and upon that account proposed that their market should be confined to the countries
south of Cape Finisterre. A clause in the famous act of navigation established this truly
shopkeeper proposal into a law.

The maintenance of this monopoly has hitherto been the principal, or more
properly, perhaps, the sole end and purpose of the dominion which Great Britain
assumes over her colonies. In the exclusive trade, it is supposed, consists the great
advantage of provinces, which have never yet afforded either revenue or military force
for the support of the civil government, or the defence of the mother country. The
monopoly is the principal badge of their dependency, and it is the sole fruit which
has hitherto been gathered from that dependency. Whatever expense Great Britain
has hitherto laid out in maintaining this dependency, has really been laid out in order
to support this monopoly. The expense of the ordinary peace establishment of the
colonies amounted, before the commencement of the present disturbances to the pay
of twenty regiments of foot; to the expense of the artillery, stores, and extraordinary
provisions, with which it was necessary to supply them; and to the expense of a very
considerable naval force, which was constantly kept up, in order to guard from the
smugeling vessels of other nations, the immense coast of North America, and that of
our West Indian islands. The whole expense of this peace establishment was a charge
upon the revenue of Great Britain, and was, at the same time, the smallest part of
what the dominion of the colonies has cost the mother country. If we would know the
amount of the whole, we must add to the annual expense of this peace establishment,
the interest of the sums which, in consequence of their considering her colonies as
provinces subject to her dominion, Great Britain has, upon different occasions, laid
out upon their defence. We must add to it, in particular, the whole expense of the late
war, and a great part of that of the war which preceded it. The late war was altogether
a colony quarrel; and the whole expense of it, in whatever part of the world it might
have been laid out, whether in Germany or the East Indies, ought justly to be stated
to the account of the colonies. It amounted to more than ninety millions sterling,
including not only the new debt which was contracted, but the two shillings in the
pound additional land tax, and the sums which were every year borrowed from the
sinking fund. The Spanish war which began in 1739 was principally a colony quarrel.
Its principal object was to prevent the search of the colony ships, which carried on a
contraband trade with the Spanish Main. This whole expense is, in reality, a bounty
which has been given in order to support a monopoly. The pretended purpose of it was
to encourage the manufactures, and to increase the commerce of Great Britain. But its
real effect has been to raise the rate of mercantile profit, and to enable our merchants

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to turn into a branch of trade, of which the returns are more slow and distant than
those of the greater part of other trades, a greater proportion of their capital than they
otherwise would have done; two events which, if a bounty could have prevented, it
might perhaps have been very well worth while to give such a bounty.

Under the present system of management, therefore, Great Britain derives nothing
but loss from the dominion which she assumes over her colonies.

To propose that Great Britain should voluntarily give up all authority over her
colonies, and leave them to elect their own magistrates, to enact their own laws, and to
make peace and war, as they might think proper, would be to propose such a measure
as never was, and never will be, adopted by any nation in the world. No nation ever
voluntarily gave up the dominion of any province, how troublesome soever it might be
to govern it, and how small soever the revenue which it afforded might be in proportion
to the expense which it occasioned. Such sacrifices, though they might frequently be
agreeable to the interest, are always mortifying to the pride of every nation; and, what
is perhaps of still greater consequence, they are always contrary to the private interest
of the governing part of it, who would thereby be deprived of the disposal of many
places of trust and profit, of many opportunities of acquiring wealth and distinction,
which the possession of the most turbulent, and, to the great body of the people,
the most unprofitable province, seldom fails to afford. The most visionary enthusiasts
would scarce be capable of proposing such a measure, with any serious hopes at least
of its ever being adopted. If it was adopted, however, Great Britain would not only be
immediately freed from the whole annual expense of the peace establishment of the
colonies, but might settle with them such a treaty of commerce as would effectually
secure to her a free trade, more advantageous to the great body of the people, though
less so to the merchants, than the monopoly which she at present enjoys. By thus
parting good friends, the natural affection of the colonies to the mother country,
which, perhaps, our late dissensions have well nigh extinguished, would quickly revive.
It might dispose them not only to respect, for whole centuries together, that treaty
of commerce which they had concluded with us at parting, but to favour us in war as
well as in trade, and instead of turbulent and factious subjects, to become our most
faithful, affectionate, and generous allies; and the same sort of parental affection on
the one side, and filial respect on the other, might revive between Great Britain and her
colonies, which used to subsist between those of ancient Greece and the mother city
from which they descended.

In order to render any province advantageous to the empire to which it belongs,
it ought to afford, in time of peace, a revenue to the public, sufficient not only for
defraying the whole expense of its own peace establishment, but for contributing its
proportion to the support of the general government of the empire. Every province
necessarily contributes, more or less, to increase the expense of that general government.
If any particular province, therefore, does not contribute its share towards defraying
this expense, an unequal burden must be thrown upon some other part of the empire.
The extraordinary revenue, too, which every province affords to the public in time of

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war, ought, from parity of reason, to bear the same proportion to the extraordinary
revenue of the whole empire, which its ordinary revenue does in time of peace. That
neither the ordinary nor extraordinary revenue which Great Britain derives from her
colonies, bears this proportion to the whole revenue of the British empire, will readily
be allowed. The monopoly, it has been supposed, indeed, by increasing the private
revenue of the people of Great Britain, and thereby enabling them to pay greater taxes,
compensates the deficiency of the public revenue of the colonies. But this monopoly,
I have endeavoured to show, though a very grievous tax upon the colonies, and though
it may increase the revenue of a particular order of men in Great Britain, diminishes,
instead of increasing, that of the great body of the people, and consequently diminishes,
instead of increasing, the ability of the great body of the people to pay taxes. The
men, too, whose revenue the monopoly increases, constitute a particular order, which
it is both absolutely impossible to tax beyond the proportion of other orders, and
extremely impolitic even to attempt to tax beyond that proportion, as I shall endeavour
to show in the following book. No particular resource, therefore, can be drawn from
this particular order.

The colonies may be taxed either by their own assemblies, or by the parliament of
Great Britain.

That the colony assemblies can never be so managed as to levy upon their
constituents a public revenue, sufficient, not only to maintain at all times their own civil
and military establishment, but to pay their proper proportion of the expense of the
general government of the British empire, seems not very probable. It was a long time
before even the parliament of England, though placed immediately under the eye of the
sovereign, could be brought under such a system of management, or could be rendered
sufficiently liberal in their grants for supporting the civil and military establishments
even of their own country. It was only by distributing among the particular members
of parliament a great part either of the offices, or of the disposal of the offices arising
from this civil and military establishment, that such a system of management could
be established, even with regard to the parliament of England. But the distance of
the colony assemblies from the eye of the sovereign, their number, their dispersed
situation, and their various constitutions, would render it very difficult to manage them
in the same mannet, even though the sovereign had the same means of doing it; and
those means are wanting, It would be absolutely impossible to distribute among all the
leading members of all the colony assemblies such a share, either of the offices, or of
the disposal of the offices, arising from the general government of the British empire,
as to dispose them to give up their popularity at home, and to tax their constituents for
the support of that general government, of which almost the whole emoluments were
to be divided among people who were strangers to them. The unavoidable ignorance of
administration, besides, concerning the relative importance of the different members
of those different assemblies, the offences which must frequently be given, the blunders
which must constantly be committed, in attempting to manage them in this manner,
seems to render such a system of management altogether impracticable with regard to

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them.

The colony assemblies, besides, cannot be supposed the proper judges of what is
necessary for the defence and support of the whole empire. The care of that defence
and support is not entrusted to them. It is not their business, and they have no regular
means of information concerning it. The assembly of a province, like the vestry of
a parish, may judge very properly concerning the affairs of its own particular district,
but can have no proper means of judging concerning those of the whole empire. It
cannot even judge properly concerning the proportion which its own province bears
to the whole empire, or concerning the relative degree of its wealth and importance,
compared with the other provinces; because those other provinces are not under the
inspection and superintendency of the assembly of a particular province. What is
necessary for the defence and support of the whole empire, and in what proportion
each part ought to contribute, can be judged of only by that assembly which inspects
and super-intends the affairs of the whole empire.

It has been proposed, accordingly, that the colonies should be taxed by requisition,
the parliament of Great Britain determining the sum which each colony ought to pay,
and the provincial assembly assessing and levying it in the way that suited best the
circumstances of the province. What concerned the whole empire would in this way
be determined by the assembly which inspects and superintends the affairs of the
whole empire; and the provincial affairs of each colony might still be regulated by its
own assembly. Though the colonies should, in this case, have no representatives in the
British parliament, yet, if we may judge by experience, there is no probability that the
parliamentary requisition would be unreasonable. The parliament of England has not,
upon any occasion, shewn the smallest disposition to overburden those parts of the
empire which are not represented in parliament. The islands of Guernsey and Jersey,
without any means of resisting the authority of parliament, are more lightly taxed than
any part of Great Britain. Parliament, in attempting to exercise its supposed right,
whether well or ill grounded, of taxing the colonies, has never hitherto demanded of
them anything which even approached to a just proportion to what was paid by their
fellow subjects at home. If the contribution of the colonies, besides, was to rise or fall
in proportion to the rise or fall of the land-tax, parliament could not tax them without
taxing, at the same time, its own constituents, and the colonies might, in this case, be
considered as virtually represented in parliament.

Examples are not wanting of empires in which all the different provinces are not
taxed, if I may be allowed the expression, in one mass; but in which the sovereign
regulates the sum which each province ought to pay, and in some provinces assesses
and levies it as he thinks proper; while in others he leaves it to be assessed and levied
as the respective states of each province shall determine. In some provinces of France,
the king not only imposes what taxes he thinks proper, but assesses and levies them in
the way he thinks proper. From others he demands a certain sum, but leaves it to the
states of each province to assess and levy that sum as they think proper. According to
the scheme of taxing by requisition, the parliament of Great Britain would stand nearly

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in the same situation towards the colony assemblies, as the king of France does towards
the states of those provinces which still enjoy the privilege of having states of their
own, the provinces of France which are supposed to be the best governed.

But though, according to this scheme, the colonies could have no just reason to
fear that their share of the public burdens should ever exceed the proper proportion to
that of their fellow-citizens at home, Great Britain might have just reason to fear that
it never would amount to that proper proportion. The parliament of Great Britain has
not, for some time past, had the same established authority in the colonies, which the
French king has in those provinces of France which still enjoy the privilege of having
states of their own. The colony assemblies, if they were not very favourably disposed
(and unless more skilfully managed than they ever have been hitherto, they are not
very likely to be so), might still find many pretences for evading or rejecting the most
reasonable requisitions of parliament. A French war breaks out, we shall suppose; ten
millions must immediately be raised, in order to defend the seat of the empire. This
sum must be borrowed upon the credit of some parliamentary fund mortgaged for
paying the interest. Part of this fund parliament proposes to raise by a tax to be levied
in Great Britain; and part of it by a requisition to all the different colony assemblies
of America and the West Indies. Would people readily advance their money upon the
credit of a fund which partly depended upon the good humour of all those assemblies,
far distant from the seat of the war, and sometimes, perhaps, thinking themselves not
much concerned in the event of it? Upon such a fund, no more money would probably
be advanced than what the tax to be levied in Great Britain might be supposed to
answer for. The whole burden of the debt contracted on account of the war would in
this manner fall, as it always has done hitherto, upon Great Britain; upon a part of the
empire, and not upon the whole empire. Great Britain is, perhaps, since the world began,
the only state which, as it has extended its empire, has only increased its expense, without
once augmenting its resources. Other states have generally disburdened themselves,
upon their subject and subordinate provinces, of the most considerable part of the
expense of defending the empire. Great Britain has hitherto suffered her subject and
subordinate provinces to disburden themselves upon her of almost this whole expense.
In order to put Great Britain upon a footing of equality with her own colonies, which
the law has hitherto supposed to be subject and subordinate, it seems necessary, upon
the scheme of taxing them by parliamentary requisition, that parliament should have
some means of rendering its requisitions immediately effectual, in case the colony
assemblies should attempt to evade or reject them; and what those means are, it is not
very easy to conceive, and it has not yet been explained.

Should the parliament of Great Britain, at the same time, be ever fully established
in the right of taxing the colonies, even independent of the consent of their own
assemblies, the importance of those assemblies would, from that moment, be at an
end, and with it, that of all the leading men of British America. Men desire to have
some share in the management of public affairs, chiefly on account of the importance
which it gives them. Upon the power which the greater part of the leading men, the

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natural aristocracy of every country, have of preserving or defending their respective
importance, depends the stability and duration of every system of free government.
In the attacks which those leading men are continually making upon the importance
of one another, and in the defence of their own, consists the whole play of domestic
faction and ambition. The leading men of America, like those of all other countries,
desire to preserve their own importance. They feel, or imagine, that if their assemblies,
which they are fond of calling parliaments, and of considering as equal in authority to
the parliament of Great Britain, should be so far degraded as to become the humble
ministers and executive officers of that parliament, the greater part of their own
importance would be at an end. They have rejected, therefore, the proposal of being
taxed by parliamentary requisition, and, like other ambitious and high-spirited men,
have rather chosen to draw the sword in defence of their own importance.

Towards the declension of the Roman republic, the allies of Rome, who had borne
the principal burden of defending the state and extending the empire, demanded to
be admitted to all the privileges of Roman citizens. Upon being refused, the social war
broke out. During the course of that war, Rome granted those privileges to the greater
part of them, one by one, and in proportion as they detached themselves from the
general confederacy. The parliament of Great Britain insists upon taxing the colonies;
and they refuse to be taxed by a parliament in which they are not represented. If to
each colony which should detach itself from the general confederacy, Great Britain
should allow such a number of representatives as suited the proportion of what it
contributed to the public revenue of the empire, in consequence of its being subjected
to the same taxes, and in compensation admitted to the same freedom of trade with
its fellow-subjects at home; the number of its representatives to be augmented as the
proportion of its contribution might afterwards augment; a new method of acquiring
importance, a new and more dazzling object of ambition, would be presented to the
leading men of each colony. Instead of piddling for the little prizes which are to be
found in what may be called the paltry raffle of colony faction, they might then hope,
from the presumption which men naturally have in their own ability and good fortune,
to draw some of the great prizes which sometimes come from the wheel of the great
state lottery of British politics. Unless this or some other method is fallen upon, and
there seems to be none more obvious than this, of preserving the importance and of
gratifying the ambition of the leading men of America, it is not very probable that
they will ever voluntarily submit to us; and we ought to consider, that the blood which
must be shed in forcing them to do so, is, every drop of it, the blood either of those
who are, ot of those whom we wish to have for our fellow citizens. They are very weak
who flatter themselves that, in the state to which things have come, our colonies will
be easily conquered by force alone. The persons who now govern the resolutions of
what they call their continental congress, feel in themselves at this moment a degree
of importance which, perhaps, the greatest subjects in Europe scarce feel, From
shopkeepers, trades men, and attorneys, they ate become statesmen and legislators, and
are employed in contriving a new form of government for an extensive empire, which,

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they flatter themselves, will become, and which, indeed, seems very likely to become,
one of the greatest and most formidable that ever was in the world. Five hundred
different people, perhaps, who, in different ways, act immediately under the continental
congress, and five hundred thousand, perhaps, who act under those five hundred, all
feel, in the same manner, a proportionable rise in their own importance. Almost every
individual of the governing party in America fills, at present, in his own fancy, a station
superior, not only to what he had ever filled before, but to what he had ever expected to
fill; and unless some new object of ambition is presented either to him or to his leaders,
if he has the ordinary spirit of a man, he will die in defence of that station.

It is a remark of the President Heynaut, that we now read with pleasure the
account of many little transactions of the Ligue, which, when they happened, were
not, perhaps, considered as very important pieces of news. But everyman then, says he,
fancied himself of some importance; and the innumerable memoirs which have come
down to us from those times, were the greater part of them written by people who took
pleasure in recording and magnifying events, in which they flattered themselves they
had been considerable actors. How obstinately the city of Paris, upon that occasion,
defended itself, what a dreadful famine it supported, rather than submit to the best, and
afterwards the most beloved of all the French kings, is well known. The greater part
of the citizens, or those who governed the greater part of them, fought in defence of
their own importance, which, they foresaw, was to be at an end whenever the ancient
government should be re-established. Our colonies, unless they can be induced to
consent to a union, are very likely to defend themselves, against the best of all mother
countries, as obstinately as the city of Paris did against one of the best of kings.

The idea of representation was unknown in ancient times. When the people of one
state were admitted to the right of citizenship in another, they had no other means of
exercising that right, but by coming in a body to vote and deliberate with the people
of that other state. The admission of the greater part of the inhabitants of Italy to
the privileges of Roman citizens, completely ruined the Roman republic. It was no
longer possible to distinguish between who was, and who was not, a Roman citizen.
No tribe could know its own members. A rabble of any kind could be introduced
into the assemblies of the people, could drive out the real citizens, and decide upon
the affairs of the republic, as if they themselves had been such. But though America
were to send fifty or sixty new representatives to parliament, the door-keeper of the
house of commons could not find any great difficulty in distinguishing between who
was and who was not a member. Though the Roman constitution, therefore, was
necessarily ruined by the union of Rome with the allied states of Italy, there is not
the least probability that the British constitution would be hurt by the union of Great
Britain with her colonies. That constitution, on the contrary, would be completed by
it, and seems to be imperfect without it. The assembly which deliberates and decides
concerning the affairs of every part of the empire, in order to be properly informed,
ought certainly to have representatives from every part of it. That this union, however,
could be easily effectuated, or that difficulties, and great difficulties, might not occur

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in the execution, I do not pretend. I have yet heard of none, however, which appear
insurmountable. The principal, perhaps, arise, not from the nature of things, but from
the prejudices and opinions of the people, both on this and on the other side of the
Atlantic.

We on this side the water are afraid lest the multitude of American representatives
should overturn the balance of the constitution, and increase too much either the
influence of the crown on the one hand, or the force of the democracy on the other.
But if the number of American representatives were to be in proportion to the produce
of American taxation, the number of people to be managed would increase exactly in
proportion to the means of managing them, and the means of managing to the number
of people to be managed. The monarchical and democratical parts of the constitution
would, after the union, stand exactly in the same degree of relative force with regard to
one another as they had done before.

The people on the other side of the water are afraid lest their distance from the seat
of government might expose them to many oppressions; but their representatives in
parliament, of which the number ought from the first to be considerable, would easily
be able to protect them from all oppression. The distance could not much weaken the
dependency of the representative upon the constituent, and the former would still feel
that he owed his seat in parliament, and all the consequence which he derived from it, to
the good-will of the latter. It would be the interest of the former, therefore, to cultivate
that good-will, by complaining, with all the authority of a member of the legislature, of
every outrage which any civil or military officer might be guilty of in those remote parts
of the empire. The distance of America from the seat of government, besides, the
natives of that country might flatter themselves, with some appearance of reason too,
would not be of very long continuance. Such has hitherto been the rapid progress of
that country in wealth, population, and improvement, that in the course of little more
than a century, perhaps, the produce of the American might exceed that of the British
taxation. The seat of the empire would then naturally remove itself to that part of the
empire which contributed most to the general defence and support of the whole.

The discovery of America, and that of a passage to the East Indies by the Cape of
Good Hope, are the two greatest and most important events recorded in the history
of mankind. Their consequences have already been great; but, in the short period of
between two and three centuries which has elapsed since these discoveries were made,
it is impossible that the whole extent of their consequences can have been seen. What
benefits or what misfortunes to mankind may hereafter result from those great events,
no human wisdom can foresee. By uniting in some measure the most distant parts of
the world, by enabling them to relieve one anothet’s wants, to increase one another's
enjoyments, and to encourage one another’s industry, their general tendency would
seem to be beneficial. To the natives, however, both of the East and West Indies, all
the commercial benefits which can have resulted from those events have been sunk
and lost in the dreadful misfortunes which they have occasioned. These misfortunes,
however, seem to have arisen rather from accident than from any thing in the nature of

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those events themselves. At the particular time when these discoveries were made, the
superiority of force happened to be so great on the side of the Europeans, that they
were enabled to commit with impunity every sort of injustice in those remote countries.
Hereafter, perhaps, the natives of those countries may grow stronger, or those of
Europe may grow weaker; and the inhabitants of all the different quarters of the world
may artive at that equality of courage and force which, by inspiring mutual fear, can
alone overawe the injustice of independent nations into some sort of respect for the
rights of one another. But nothing seems more likely to establish this equality of force,
than that mutual communication of knowledge, and of all sorts of improvements,
which an extensive commerce from all countries to all countries naturally, or rather
necessarily, carries along with it.

In the mean time, one of the principal effects of those discoveries has been, to
raise the mercantile system to a degree of splendour and glory which it could never
otherwise have attained to. It is the object of that system to enrich a great nation, rather
by trade and manufactures than by the improvement and cultivation of land, rather by
the industry of the towns than by that of the country. But in consequence of those
discoveries, the commercial towns of Europe, instead of being the manufacturers and
catriers for but a very small part of the world (that part of Europe which is washed
by the Atlantic ocean, and the countries which lie round the Baltic and Mediterranean
seas), have now become the manufacturers for the numerous and thriving cultivators
of America, and the carriers, and in some respects the manufacturers too, for almost all
the different nations of Asia, Africa, and America. Two new worlds have been opened
to their industry, each of them much greater and more extensive than the old one, and
the market of one of them growing still greater and greater every day.

The countries which possess the colonies of America, and which trade directly to
the East Indies, enjoy indeed the whole show and splendour of this great commertce.
Other countries, however, notwithstanding all the invidious restraints by which it is
meant to exclude them, frequently enjoy a greater share of the real benefit of it. The
colonies of Spain and Portugal, for example, give more real encouragement to the
industry of other countries than to that of Spain and Portugal. In the single article of
linen alone, the consumption of those colonies amounts, it is said (but I do not pretend
to warrant the quantity ), to more than three millions sterling a-year. But this great
consumption is almost entirely supplied by France, Flanders, Holland, and Germany.
Spain and Portugal furnish but a small part of it. The capital which supplies the colonies
with this great quantity of linen, is annually distributed among, and furnishes a revenue
to, the inhabitants of those other countries. The profits of it only are spent in Spain
and Portugal, where they help to support the sumptuous profusion of the merchants
of Cadiz and Lisbon.

Even the regulations by which each nation endeavours to secure to itself the
exclusive trade of its own colonies, are frequently more hurtful to the countries in
favour of which they are established, than to those against which they are established.
The unjust oppression of the industry of other countries falls back, if I may say so,

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upon the heads of the oppressors, and crushes their industry more than it does that
of those other countries. By those regulations, for example, the merchant of Hamburg
must send the linen which he destines for the American market to London, and he
must bring back from thence the tobacco which he destines for the German market;
because he can neither send the one directly to America, nor bring the other directly
from thence. By this restraint he is probably obliged to sell the one somewhat cheaper,
and to buy the other somewhat dearer, than he otherwise might have done; and his
profits are probably somewhat abridged by means of it. In this trade, however, between
Hamburg and London, he certainly receives the returns of his capital much more
quickly than he could possibly have done in the direct trade to America, even though
we should suppose, what is by no means the case, that the payments of America were
as punctual as those of London. In the trade, therefore, to which those regulations
confine the merchant of Hamburg, his capital can keep in constant employment a
much greater quantity of German industry than he possibly could have done in the
trade from which he is excluded. Though the one employment, therefore, may to him
perhaps be less profitable than the other, it cannot be less advantageous to his country.
It is quite otherwise with the employment into which the monopoly naturally attracts,
if I may say so, the capital of the London merchant. That employment may, perhaps,
be more profitable to him than the greater part of other employments; but on account
of the slowness of the returns, it cannot be more advantageous to his country.

After all the unjust attempts, therefore, of every country in Europe to engross to
itself the whole advantage of the trade of its own colonies, no country has yet been
able to engross to itself any thing but the expense of supporting in time of peace, and
of defending in time of war, the oppressive authority which it assumes over them.
The inconveniencies resulting from the possession of its colonies, every country has
engrossed to itself completely. The advantages resulting from their trade, it has been
obliged to share with many other countries.

At first sight, no doubt, the monopoly of the great commerce of America
naturally seems to be an acquisition of the highest value. To the undiscerning eye of
giddy ambition it naturally presents itself, amidst the confused scramble of politics
and war, as a very dazzling object to fight for. The dazzling splendour of the object,
however, the immense greatness of the commerce, is the very quality which renders the
monopoly of it hurtful, or which makes one employment, in its own nature necessarily
less advantageous to the country than the greater part of other employments, absorb
a much greater proportion of the capital of the country than what would otherwise
have gone to it.

The mercantile stock of every country, it has been shown in the second book,
naturally seeks, if one may say so, the employment most advantageous to that country.
If it is employed in the carrying trade, the country to which it belongs becomes the
emporium of the goods of all the countries whose trade that stock carries on. But the
owner of that stock necessarily wishes to dispose of as great a part of those goods as
he can at home. He thereby saves himself the trouble, risk, and expense of exportation;

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and he will upon that account be glad to sell them at home, not only for a much smaller
price, but with somewhat a smaller profit, than he might expect to make by sending
them abroad. He naturally, therefore, endeavours as much as he can to turn his carrying
trade into a foreign trade of consumption, If his stock, again, is employed in a foreign
trade of consumption, he will, for the same reason, be glad to dispose of, at home, as
great a part as he can of the home goods which he collects in order to export to some
foreign market, and he will thus endeavour, as much as he can, to turn his foreign trade
of consumption into a home trade. The mercantile stock of every country naturally
courts in this manner the near, and shuns the distant employment: naturally courts
the employment in which the returns are frequent, and shuns that in which they are
distant and slow; naturally courts the employment in which it can maintain the greatest
quantity of productive labour in the country to which it belongs, or in which its owner
resides, and shuns that in which it can maintain there the smallest quantity. It naturally
courts the employment which in ordinary cases is most advantageous, and shuns that
which in ordinary cases is least advantageous to that country.

But if, in any one of those distant employments, which in ordinary cases are less
advantageous to the country, the profit should happen to rise somewhat higher than
whatis sufficient to balance the natural preference which is given to nearer employments,
this superiority of profit will draw stock from those nearer employments, till the profits
of all return to their proper level. This superiority of profit, however, is a proof that,
in the actual circumstances of the society, those distant employments are somewhat
understocked in proportion to other employments, and that the stock of the society is
not distributed in the properest manner among all the different employments carried
on in it. It is a proof that something is either bought cheaper or sold dearer than it
ought to be, and that some particular class of citizens is more or less oppressed, either
by paying more, or by getting less than what is suitable to that equality which ought to
take place, and which naturally does take place, among all the different classes of them.
Though the same capital never will maintain the same quantity of productive labour
in a distant as in a near employment, yet a distant employment maybe as necessary for
the welfare of the society as a near one; the goods which the distant employment deals
in being necessary, perhaps, for carrying on many of the nearer employments. But if
the profits of those who deal in such goods are above their proper level, those goods
will be sold dearer than they ought to be, or somewhat above their natural price, and
all those engaged in the nearer employments will be more or less oppressed by this
high price. Their interest, therefore, in this case, requires, that some stock should be
withdrawn from those nearer employments, and turned towards that distant one, in
order to reduce its profits to their proper level, and the price of the goods which it
deals in to their natural price. In this extraordinary case, the public interest requires
that some stock should be withdrawn from those employments which, in ordinary
cases, are more advantageous, and turned towards one which, in ordinary cases, is less
advantageous to the public; and, in this extraordinary case, the natural interests and
inclinations of men coincide as exactly with the public interests as in all other ordinary

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cases, and lead them to withdraw stock from the near, and to turn it towards the distant
employments.

It is thus that the private interests and passions of individuals naturally dispose
them to turn their stock towards the employments which in ordinary cases, are most
advantageous to the society. But if from this natural preference they should turn too
much of it towards those employments, the fall of profit in them, and the rise of it
in all others, immediately dispose them to alter this faulty distribution. Without any
intervention of law, therefore, the private interests and passions of men naturally
lead them to divide and distribute the stock of every society among all the different
employments carried on in it; as nearly as possible in the proportion which is most
agreeable to the interest of the whole society.

All the different regulations of the mercantile system necessarily derange more or
less this natural and most advantageous distribution of stock. But those which concern
the trade to America and the East Indies derange it, perhaps, more than any other;
because the trade to those two great continents absorbs a greater quantity of stock than
any two other branches of trade. The regulations, however, by which this derangement
is effected in those two different branches of trade, are not altogether the same.
Monopoly is the great engine of both; but it is a different sort of monopoly. Monopoly
of one kind or another, indeed, seems to be the sole engine of the mercantile system.

In the trade to America, every nation endeavours to engross as much as possible
the whole market of its own colonies, by fairly excluding all other nations from any
direct trade to them. During the greater part of the sixteenth century, the Portuguese
endeavoured to manage the trade to the East Indies in the same manner, by claiming
the sole right of sailing in the Indian seas, on account of the merit of having first found
out the road to them. The Dutch still continue to exclude all other European nations
from any direct trade to their spice islands. Monopolies of this kind are evidently
established against all other European nations, who are thereby not only excluded from
a trade to which it might be convenient for them to turn some part of their stock, but
ate obliged to buy the goods which that trade deals in, somewhat dearer than if they
could import them themselves directly from the countries which produced them.

But since the fall of the power of Portugal, no European nation has claimed the
exclusive right of sailing in the Indian seas, of which the principal ports are now open
to the ships of all European nations. Except in Portugal, however, and within these
few years in France, the trade to the East Indies has, in every European country, been
subjected to an exclusive company. Monopolies of this kind are properly established
against the very nation which erects them. The greater part of that nation are thereby
not only excluded from a trade to which it might be convenient for them to turn some
part of their stock, but are obliged to buy the goods which that trade deals in somewhat
dearer than if it was open and free to all their countrymen. Since the establishment of
the English East India company, for example, the other inhabitants of England, over
and above being excluded from the trade, must have paid, in the price of the Fast India
goods which they have consumed, not only for all the extraordinary profits which

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the company may have made upon those goods in consequence of their monopoly,
but for all the extraordinary waste which the fraud and abuse inseparable from the
management of the affairs of so great a company must necessarily have occasioned.
The absurdity of this second kind of monopoly, therefore, is much more manifest than
that of the first.

Both these kinds of monopolies derange more or less the natural distribution of
the stock of the society; but they do not always derange it in the same way.

Monopolies of the first kind always attract to the particular trade in which they are
established a greater proportion of the stock of the society than what would go to that
trade of its own accord.

Monopolies of the second kind may sometimes attract stock towards the particular
trade in which they are established, and sometimes repel it from that trade, according
to different circumstances. In poor countries, they naturally attract towards that trade
more stock than would otherwise go to it. In rich countries, they naturally repel from it
a good deal of stock which would otherwise go to it.

Such poor countries as Sweden and Denmark, for example, would probably have
never sent a single ship to the East Indies, had not the trade been subjected to an
exclusive company. The establishment of such a company necessarily encourages
adventurers. Their monopoly secures them against all competitors in the home market,
and they have the same chance for foreign markets with the traders of other nations.
Their monopoly shows them the certainty of a great profit upon a considerable quantity
of goods, and the chance of a considerable profit upon a great quantity. Without such
extraordinary encouragement, the poor traders of such poor countries would probably
never have thought of hazarding their small capitals in so very distant and uncertain an
adventure as the trade to the East Indies must naturally have appeared to them.

Such a rich country as Holland, on the contrary, would probably, in the case of a
free trade, send many more ships to the East Indies than it actually does. The limited
stock of the Dutch East India company probably repels from that trade many great
mercantile capitals which would otherwise go to it. The mercantile capital of Holland is
so great, that it is, as it were, continually overflowing, sometimes into the public funds
of foreign countries, sometimes into loans to private traders and adventurers of foreign
countries, sometimes into the most round-about foreign trades of consumption, and
sometimes into the carrying trade. All near employments being completely filled up, all
the capital which can be placed in them with any tolerable profit being already placed in
them, the capital of Holland necessarily flows towards the most distant employments.
The trade to the East Indies, if it were altogether free, would probably absorb the
greater part of this redundant capital. The East Indies offer a market both for the
manufactures of Europe, and for the gold and silver, as well as for the several other
productions of America, greater and more extensive than both Europe and America
put together.

Every derangement of the natural distribution of stock is necessarily hurtful to
the society in which it takes place; whether it be by repelling from a particular trade the

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stock which would otherwise go to it, or by attracting towards a particular trade that
which would not otherwise come to it. If, without any exclusive company, the trade of
Holland to the East Indies would be greater than it actually is, that country must suffer
a considerable loss, by part of its capital being excluded from the employment most
convenient for that port. And, in the same manner, if, without an exclusive company,
the trade of Sweden and Denmark to the East Indies would be less than it actually is, or,
what perhaps is more probable, would not exist at all, those two countries must likewise
suffer a considerable loss, by part of their capital being drawn into an employment
which must be more or less unsuitable to their present circumstances. Better for them,
perhaps, in the present circumstances, to buy East India goods of other nations, even
though they should pay somewhat dearer, than to turn so great a part of their small
capital to so very distant a trade, in which the returns are so very slow, in which that
capital can maintain so small a quantity of productive labour at home, where productive
labour is so much wanted, where so little is done, and where so much is to do.

Though without an exclusive company, therefore, a particular country should not
be able to carry on any direct trade to the East Indies, it will not from thence follow, that
such a company ought to be established there, but only that such a country ought not,
in these circumstances, to trade directly to the East Indies. That such companies are not
in general necessary for carrying on the East India trade, is sufficiently demonstrated by
the experience of the Portuguese, who enjoyed almost the whole of it for more than a
century together, without any exclusive company.

No private merchant, it has been said, could well have capital sufficient to maintain
factors and agents in the different ports of the East Indies, in order to provide goods
for the ships which he might occasionally send thither; and yet, unless he was able
to do this, the difficulty of finding a cargo might frequently make his ships lose the
season for returning; and the expense of so long a delay would not only eat up the
whole profit of the adventure, but frequently occasion a very considerable loss. This
argument, however, if it proved any thing at all, would prove that no one great branch
of trade could be carried on without an exclusive company, which is contrary to the
experience of all nations. There is no great branch of trade, in which the capital of any
one private merchant is sufficient for carrying on all the subordinate branches which
must be carried on, in order to carry on the principal one. But when a nation is ripe
for any great branch of trade, some merchants naturally turn their capitals towards
the principal, and some towards the subordinate branches of it; and though all the
different branches of it are in this manner carried on, yet it very seldom happens that
they are all carried on by the capital of one private merchant. If a nation, therefore, is
ripe for the Hast India trade, a certain portion of its capital will naturally divide itself
among all the different branches of that trade. Some of its merchants will find it for
their interest to reside in the East Indies, and to employ their capitals there in providing
goods for the ships which are to be sent out by other merchants who reside in Europe.
The settlements which different European nations have obtained in the Hast Indies, if
they were taken from the exclusive companies to which they at present belong, and put

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under the immediate protection of the sovereign, would render this residence both safe
and easy, at least to the merchants of the particular nations to whom those settlements
belong. If, at any particular time, that part of the capital of any country which of its
own accord tended and inclined, if I may say so, towards the East India trade, was
not sufficient for carrying on all those different branches of it, it would be a proof
that, at that particular time, that country was not ripe for that trade, and that it would
do better to buy for some time, even at a higher price, from other European nations,
the East India goods it had occasion for, than to import them itself directly from the
East Indies. What it might lose by the high price of those goods, could seldom be
equal to the loss which it would sustain by the distraction of a large portion of its
capital from other employments more necessary, ot more useful, or more suitable to its
circumstances and situation, than a direct trade to the East Indies.

Though the Europeans possess many considerable settlements both upon the
coast of Africa and in the East Indies, they have not yet established, in either of those
countries, such numerous and thriving colonies as those in the islands and continent of
America. Africa, however, as well as several of the countries comprehended under the
general name of the East Indies, is inhabited by barbarous nations. But those nations
were by no means so weak and defenceless as the miserable and helpless Americans;
and in proportion to the natural fertility of the countries which they inhabited, they
were, besides, much more populous. The most barbarous nations either of Africa or
of the East Indies, were shepherds; even the Hottentots were so. But the natives of
every part of America, except Mexico and Peru, were only hunters and the difference
is very great between the number of shepherds and that of hunters whom the same
extent of equally fertile territory can maintain. In Africa and the East Indies, therefore,
it was more difficult to displace the natives, and to extend the European plantations
over the greater part of the lands of the original inhabitants. The genius of exclusive
companies, besides, is unfavourable, it has already been observed, to the growth of
new colonies, and has probably been the principal cause of the little progress which
they have made in the East Indies. The Portuguese carried on the trade both to Africa
and the Hast Indies, without any exclusive companies; and their settlements at Congo,
Angola, and Benguela, on the coast of Africa, and at Goa in the East Indies though
much depressed by superstition and every sort of bad government, yet beat some
resemblance to the colonies of America, and are partly inhabited by Portuguese who
have been established there for several generations. The Dutch settlements at the Cape
of Good Hope and at Batavia, are at present the most considerable colonies which
the Europeans have established, either in Africa or in the East Indies; and both those
settlements an peculiarly fortunate in their situation. The Cape of Good Hope was
inhabited by a race of people almost as barbarous, and quite as incapable of defending
themselves, as the natives of America. It is, besides, the half-way house, if one may say
so, between Europe and the East Indies, at which almost every European ship makes
some stay, both in going and returning. The supplying of those ships with every sort
of fresh provisions, with fruit, and sometimes with wine, affords alone a very extensive

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market for the surplus produce of the colonies. What the Cape of Good Hope is
between Europe and every part of the East Indies, Batavia is between the principal
countries of the East Indies. It lies upon the most frequented road from Indostan to
China and Japan, and is nearly about mid-way upon that road. Almost all the ships too,
that sail between Europe and China, touch at Batavia; and it is, over and above all this,
the centre and principal mart of what is called the country trade of the East Indies;
not only of that part of it which is carried on by Europeans, but of that which is
carried on by the native Indians; and vessels navigated by the inhabitants of China and
Japan, of Tonquin, Malacca, Cochin-China, and the island of Celebes, are frequently
to be seen in its port. Such advantageous situations have enabled those two colonies to
surmount all the obstacles which the oppressive genius of an exclusive company may
have occasionally opposed to their growth. They have enabled Batavia to surmount the
additional disadvantage of perhaps the most unwholesome climate in the world.

The English and Dutch companies, though they have established no considerable
colonies, except the two above mentioned, have both made considerable conquests in
the East Indies. But in the manner in which they both govern their new subjects, the
natural genius of an exclusive company has shewn itself most distinctly. In the spice
islands, the Dutch are said to burn all the spiceries which a fertile season produces,
beyond what they expect to dispose of in Europe with such a profit as they think
sufficient. In the islands where they have no settlements, they give a premium to those
who collect the young blossoms and green leaves of the clove and nutmeg trees, which
naturally grow there, but which this savage policy has now, it is said, almost completely
extirpated. Even in the islands where they have settlements, they have very much
reduced, it is said, the number of those trees. If the produce even of their own islands
was much greater than what suited their market, the natives, they suspect, might find
means to convey some part of it to other nations; and the best way, they imagine, to
secure their own monopoly, is to take care that no more shall grow than what they
themselves carry to market. By different arts of oppression, they have reduced the
population of several of the Moluccas nearly to the number which is sufficient to
supply with fresh provisions, and other necessaries of life, their own insignificant
garrisons, and such of their ships as occasionally come there for a cargo of spices.
Under the government even of the Portuguese, however, those islands are said to have
been tolerably well inhabited. The English company have not yet had time to establish
in Bengal so perfectly destructive a system. The plan of their government, however,
has had exactly the same tendency. It has not been uncommon, I am well assured, for
the chief, that is, the first clerk or a factory, to order a peasant to plough up a rich field
of poppies, and sow it with rice, or some other grain. The pretence was, to prevent a
scarcity of provisions; but the real reason, to give the chief an opportunity of selling
at a better price a large quantity of opium which he happened then to have upon
hand. Upon other occasions, the order has been reversed; and a rich field of tice or
other grain has been ploughed up, in order to make room for a plantation of poppies,
when the chief foresaw that extraordinary profit was likely to be made by opium. The

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servants of the company have, upon several occasions, attempted to establish in their
own favour the monopoly of some of the most important branches, not only of the
foreign, but of the inland trade of the country. Had they been allowed to go on, it is
impossible that they should not, at some time or another, have attempted to restrain
the production of the particular articles of which they had thus usurped the monopoly,
not only to the quantity which they themselves could purchase, but to that which they
could expect to sell with such a profit as they might think sufficient. In the course
of a century or two, the policy of the English company would, in this manner, have
probably proved as completely destructive as that of the Dutch.

Nothing, however, can be more directly contrary to the real interest of those
companies, considered as the sovereigns of the countries which they have conquered,
than this destructive plan. In almost all countries, the revenue of the sovereign is drawn
from that of the people. The greater the revenue of the people, therefore, the greater
the annual produce of their land and labour, the more they can afford to the sovereign.
It is his interest, therefore, to increase as much as possible that annual produce. But if
this is the interest of every sovereign, it is peculiarly so of one whose revenue, like that
of the sovereign of Bengal, arises chiefly from a land-rent. That rent must necessarily
be in proportion to the quantity and value of the produce; and both the one and the
other must depend upon the extent of the market. The quantity will always be suited,
with more or less exactness, to the consumption of those who can afford to pay for
it; and the price which they will pay will always be in proportion to the eagerness of
their competition. It is the interest of such a sovereign, therefore, to open the most
extensive market for the produce of his country, to allow the most perfect freedom
of commerce, in order to increase as much as possible the number and competition
of buyers; and upon this account to abolish, not only all monopolies, but all restraints
upon the transportation of the home produce from one part of the country to mother,
upon its exportation to foreign countries, or upon the importation of goods of’ any
kind for which it can be exchanged. He is in this manner most likely to increase both
the quantity and value of that produce, and consequently of his own share of it, or of
his own revenue.

But a company of merchants, are, it seems, incapable of considering themselves as
sovereigns, even after they have become such. Trade, or buying in order to sell again,
they still consider as their principal business, and by a strange absurdity, regard the
character of the sovereign as but an appendix to that of the merchant; as something
which ought to be made subservient to it, or by means of which they may be enabled to
buy cheaper in India, and thereby to sell with a better profit in Europe. They endeavour,
for this purpose, to keep out as much as possible all competitors from the market of
the countries which are subject to their government, and consequently to reduce, at
least, some part of the surplus produce of those countries to what is barely sufficient
for supplying their own demand, or to what they can expect to sell in Europe, with
such a profit as they may think reasonable. Their mercantile habits draw them in this
manner, almost necessarily, though perhaps insensibly, to prefer, upon all ordinary

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occasions, the little and transitory profit of the monopolist to the great and permanent
revenue of the sovereign; and would gradually lead them to treat the countries subject
to their government nearly as the Dutch treat the Moluccas. It is the interest of the East
India company, considered as sovereigns, that the European goods which are carried to
their Indian dominions should be sold there as cheap as possible; and that the Indian
goods which are brought from thence should bring there as good a price, or should
be sold there as dear as possible. But the reverse of this is their interest as merchants.
As sovereigns, their interest is exactly the same with that of the country which they
govern. As merchants, their interest is directly opposite to that interest.

But if the genius of such a government, even as to what concerns its direction
in Europe, is in this manner essentially, and perhaps incurably faulty, that of its
administration in India is still more so. That administration is necessarily composed
of a council of merchants, a profession no doubt extremely respectable, but which
in no country in the world carries along with it that sort of authority which naturally
overawes the people, and without force commands their willing obedience. Such a
council can command obedience only by the military force with which they are
accompanied; and their government is, therefore, necessarily military and despotical.
Their proper business, however, is that of merchants. It is to sell, upon their master’s
account, the European goods consigned to them, and to buy, in return, Indian goods
for the European market. It is to sell the one as dear, and to buy the other as cheap as
possible, and consequently to exclude, as much as possible, all rtvals from the particular
market where they keep their shop. The genius of the administration, therefore, so far
as concerns the trade of the company, is the same as that of the direction. It tends to
make government subservient to the interest of monopoly, and consequently to stunt
the natural growth of some parts, at least, of the surplus produce of the country, to
what is barely sufficient for answering the demand of the company.

All the members of the administration besides, trade more or less upon their
own account; and it is in vain to prohibit them from doing so. Nothing can be more
completely foolish than to expect that the clerk of a great counting-house, at ten
thousand miles distance, and consequently almost quite out of sight, should, upon a
simple order from their master, give up at once doing any sort of business upon their
own account abandon for ever all hopes of making a fortune, of which they have
the means in their hands; and content themselves with the moderate salaries which
those masters allow them, and which, moderate as they are, can seldom be augmented,
being commonly as large as the real profits of the company trade can afford. In such
circumstances, to prohibit the servants of the company from trading upon their own
account, can have scarce any other effect than to enable its superior servants, under
pretence of executing their master’s order, to oppress such of the inferior ones as have
had the misfortune to fall under their displeasure. The servants naturally endeavour to
establish the same monopoly in favour of their own private trade as of the public trade
of the company. If they are suffered to act as they could wish, they will establish this
monopoly openly and directly, by fairly prohibiting all other people from trading in the

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articles in which they choose to deal; and this, perhaps, is the best and least oppressive
way of establishing it. But if, by an order from Europe, they are prohibited from doing
this, they will, notwithstanding, endeavour to establish a monopoly of the same kind
secretly and indirectly, in a way that is much more destructive to the country. They will
employ the whole authority of government, and pervert the administration of Justice,
in order to harass and ruin those who interfere with them in any branch of commerce,
which by means of agents, either concealed, or at least not publicly avowed, they may
choose to carry on. But the private trade of the servants will naturally extend to a much
greater variety of articles than the public trade of the company. The public trade of the
company extends no further than the trade with Europe, and comprehends a part only
of the foreign trade of the country. But the private trade of the servants may extend
to all the different branches both of its inland and foreign trade. The monopoly of the
company can tend only to stunt the natural growth of that part of the surplus produce
which, in the case of a free trade, would be exported to Europe. That of the servants
tends to stunt the natural growth of every part of the produce in which they choose
to deal; of what is destined for home consumption, as well as of what is destined for
exportation; and consequently to degrade the cultivation of the whole country, and to
reduce the number of its inhabitants. It tends to reduce the quantity of every sort of
produce, even that of the necessaries of life, whenever the servants of the country
choose to deal in them, to what those servants can both afford to buy and expect to
sell with such a profit as pleases them.

From the nature of their situation, too, the servants must be more disposed to
support with rigourous severity their own interest, against that of the country which
they govern, than their masters can be to support theirs. The country belongs to their
masters, who cannot avoid having some regard for the interest of what belongs to them;
but it does not belong to the servants. The real interest of their masters, if they were
capable of understanding it, is the same with that of the country; {The interest of every
proprietor of India stock, however, is by no means the same with that of the country in
the government of which his vote gives him some influence——See book vy, chap. 1, part
ii.}and it is from ignorance chiefly, and the meanness of mercantile prejudice, that they
ever oppress it. But the real interest of the servants is by no means the same with that
of the country, and the most perfect information would not necessarily put an end to
their oppressions. The regulations, accordingly, which have been sent out from Europe,
though they have been frequently weak, have upon most occasions been well meaning,
More intelligence, and perhaps less good meaning, has sometimes appeared in those
established by the servants in India. It is a very singular government in which every
member of the administration wishes to get out of the country, and consequently to
have done with the government, as soon as he can, and to whose interest, the day after
he has left it, and carried his whole fortune with him, it is perfectly indifferent though
the whole country was swallowed up by an earthquake.

I mean not, however, by any thing which I have here said, to throw any odious
imputation upon the general character of the servants of the East India company,

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and touch less upon that of any particular persons. It is the system of government,
the situation in which they are placed, that I mean to censure, not the character of
those who have acted in it. They acted as their situation naturally directed, and they
who have clamoured the loudest against them would probably not have acted better
themselves. In war and negotiation, the councils of Madras and Calcutta, have upon
several occasions, conducted themselves with a resolution and decisive wisdom, which
would have done honour to the senate of Rome in the best days of that republic.
The members of those councils, however, had been bred to professions very different
from war and politics. But their situation alone, without education, experience, or even
example, seems to have formed in them all at once the great qualities which it required,
and to have inspired them both with abilities and virtues which they themselves could
not well know that they possessed. If upon some occasions, therefore, it has animated
them to actions of magnanimity which could not well have been expected from them,
we should not wonder if, upon others, it has prompted them to exploits of somewhat
a different nature.

Such exclusive companies, therefore, are nuisances in every respect; always more
or less inconvenient to the countries in which they are established, and destructive to
those which have the misfortune to fall under their government.

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THE WEALTH OF NATIONS

CHAPTER VIII.

CONCLUSION OF THE
MERCANTILE SYSTEM.

hough the encouragement of exportation, and the discouragement of

importation, are the two great engines by which the mercantile system proposes
to enrich every country, yet, with regard to some particular commodities, it seems
to follow an opposite plan: to discourage exportation, and to encourage importation.
Its ultimate object, however, it pretends, is always the same, to enrich the country by
an advantageous balance of trade. It discourages the exportation of the materials of
manufacture, and of the instruments of trade, in order to give our own workmen
an advantage, and to enable them to undersell those of other nations in all foreign
markets; and by restraining, in this manner, the exportation of a few commodities, of
no great price, it proposes to occasion a much greater and more valuable exportation
of others. It encourages the importation of the materials of manufacture, in order that
our own people may be enabled to work them up more cheaply, and thereby prevent
a greater and more valuable importation of the manufactured commodities. I do not
observe, at least in our statute book, any encouragement given to the importation of
the instruments of trade. When manufactures have advanced to a certain pitch of
greatness, the fabrication of the instruments of trade becomes itself the object of a
great number of very important manufactures. To give any particular encouragement
to the importation of such instruments, would interfere too much with the interest
of those manufactures. Such importation, therefore, instead of being encouraged, has
frequently been prohibited. Thus the importation of wool cards, except from Ireland,
or when brought in as wreck or prize goods, was prohibited by the 3rd of Edward IV.;
which prohibition was renewed by the 39th of Elizabeth, and has been continued and
rendered perpetual by subsequent laws.

The importation of the materials of manufacture has sometimes been encouraged
by an exemption from the duties to which other goods are subject, and sometimes by
bounties.

The importation of sheep’s wool from several different countries, of cotton wool
from all countries, of undressed flax, of the greater part of dyeing drugs, of the greater
part of undressed hides from Ireland, or the British colonies, of seal skins from the
British Greenland fishery, of pig and bar iron from the British colonies, as well as of
several other materials of manufacture, has been encouraged by an exemption from all

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duties, if properly entered at the custom-house. The private interest of our merchants
and manufacturers may, perhaps, have extorted from the legislature these exemptions,
as well as the greater part of our other commercial regulations. They are, however,
perfectly just and reasonable; and if, consistently with the necessities of the state, they
could be extended to all the other materials of manufacture, the public would certainly
be a gainer.

The avidity of our great manufacturers, however, has in some cases extended these
exemptions a good deal beyond what can justly be considered as the rude materials
of their work. By the 24th Geo. II. chap. 46, a small duty of only 1d. the pound was
imposed upon the importation of foreign brown linen yarn, instead of much higher
duties, to which it had been subjected before, viz. of 6d. the pound upon sail yarn,
of 1s. the pound upon all French and Dutch yarn, and of £2:13:4 upon the hundred
weight of all spruce or Muscovia yarn. But our manufacturers were not long satisfied
with this reduction: by the 29th of the same king, chap. 15, the same law which gave
a bounty upon the exportation of British and Irish linen, of which the price did
not exceed 18d. the yard, even this small duty upon the importation of brown linen
yarn was taken away. In the different operations, however, which are necessary for
the preparation of linen yarn, a good deal more industry is employed, than in the
subsequent operation of preparing linen cloth from linen yarn. To say nothing of
the industry of the flax-growers and flaxdressers, three or four spinners at least are
necessaty in order to keep one weaver in constant employment; and more than four-
fifths of the whole quantity of labour necessary for the preparation of linen cloth, ts
employed in that of linen yarn; but our spinners are poor people; women commonly
scattered about in all different parts of the country, without support or protection. It is
not by the sale of their work, but by that of the complete work of the weavers, that our
great master manufacturers make their profits. As it is their interest to sell the complete
manufacture as dear, so it is to buy the materials as cheap as possible. By extorting from
the legislature bounties upon the exportation of their own linen, high duties upon the
importation of all foreign linen, and a total prohibition of the home consumption of
some sorts of French linen, they endeavour to sell their own goods as dear as possible.
By encouraging the importation of foreign linen yarn, and thereby bringing it into
competition with that which is made by our own people, they endeavour to buy the
work of the poor spinners as cheap as possible. They are as intent to keep down the
wages of their own weavers, as the earnings of the poor spinners; and it is by no means
for the benefit of the workmen that they endeavour either to raise the price of the
complete work, or to lower that of the rude materials. It is the industry which is carried
on for the benefit of the rich and the powerful, that is principally encouraged by our
mercantile system. That which is carried on for the benefit of the poor and the indigent
is too often either neglected or oppressed.

Both the bounty upon the exportation of linen, and the exemption from the
duty upon the importation of foreign yarn, which were granted only for fifteen years,
but continued by two different prolongations, expire with the end of the session of

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parliament which shall immediately follow the 24th of June 1786.

The encouragement given to the importation of the materials of manufacture by
bounties, has been principally confined to such as were imported from our American
plantations.

The first bounties of this kind were those granted about the beginning of the
present century, upon the importation of naval stores from America. Under this
denomination were comprehended timber fit for masts, yards, and bowsprits; hemp,
tar, pitch, and turpentine. The bounty, however, of {1 the ton upon masting-timber,
and that of £6 the ton upon hemp, were extended to such as should be imported into
England from Scotland. Both these bounties continued, without any variation, at the
same rate, till they were severally allowed to expire; that upon hemp on the Ist of
January 1741, and that upon masting-timber at the end of the session of parliament
immediately following the 24th June 1781.

The bounties upon the importation of tar, pitch, and turpentine, underwent, during
their continuance, several alterations. Originally, that upon tar was £4 the ton; that
upon pitch the same; and that upon turpentine £3 the ton. The bounty of £4 the ton
upon tar was afterwards confined to such as had been prepared in a particular manner;
that upon other good, clean, and merchantable tar was reduced to £2:4s. the ton. The
bounty upon pitch was likewise reduced to £1, and that upon turpentine to £1:10s. the
ton.

The second bounty upon the importation of any of the materials of manufacture,
according to the order of time, was that granted by the 21st Geo. II. chap.30, upon the
importation of indigo from the British plantations. When the plantation indigo was
worth three-fourths of the price of the best French indigo, it was, by this act, entitled
to a bounty of 6d. the pound. This bounty, which, like most others, was granted only
for a limited time, was continued by several prolongations, but was reduced to 4d.
the pound. It was allowed to expire with the end of the session of parliament which
followed the 25th March 1781.

The third bounty of this kind was that granted (much about the time that we were
beginning sometimes to court, and sometimes to quarrel with our American colonies),
by the 4th. Geo. III. chap. 26, upon the importation of hemp, or undressed flax, from
the British plantations. This bounty was granted for twenty-one years, from the 24th
June 1764 to the 24th June 1785. For the first seven years, it was to be at the rate of £8
the ton; for the second at £6; and for the third at £4. It was not extended to Scotland,
of which the climate (although hemp is sometimes raised there in small quantities,
and of an inferior quality) is not very fit for that produce. Such a bounty upon the
importation of Scotch flax in England would have been too great a discouragement to
the native produce of the southern part of the united kingdom.

The fourth bounty of this kind was that granted by the 5th Geo. III. chap. 45, upon
the importation of wood from America. It was granted for nine years from the 1st
January 1766 to the 1st January 1775. During the first three years, it was to be for every
hundred-and-twenty good deals, at the rate of £1, and for every load containing fifty

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cubic feet of other square timber, at the rate of 12s. For the second three years, it was
for deals, to be at the rate of 15s., and for other squared timber at the rate of 85.; and
for the third three years, it was for deals, to be at the rate of 10s.; and for every other
squared timber at the rate of 5s.

The fifth bounty of this kind was that granted by the 9th Geo. LIL. chap. 38, upon
the importation of raw silk from the British plantations. It was granted for twenty-one
years, from the 1st January 1770, to the 1st January 1791. For the first seven years, it
was to be at the rate of £25 for every hundred pounds value; for the second, at £20;
and for the third, at £15. The management of the silk-worm, and the preparation of
silk, requires so much hand-labour, and labour is so very dear in America, that even this
great bounty, I have been informed, was not likely to produce any considerable effect.

The sixth Bounty of this kind was that granted by 11th Geo. IIL chap. 50, for
the importation of pipe, hogshead, and barrelstaves and leading from the British
plantations. It was granted for nine years, from 1st January 1772 to the 1st January
1781. For the first three years, it was, for a certain quantity of each, to be at the rate of
£06; for the second three years at £4; and for the third three years at £2.

The seventh and last bounty of this kind was that granted by the 19th Geo. III
chap. 37, upon the importation of hemp from Ireland. It was granted in the same
manner as that for the importation of hemp and undressed flax from America, for
twenty-one years, from the 24th June 1779 to the 24th June 1800. The term is divided
likewise into three periods, of seven years each; and in each of those periods, the rate
of the Irish bounty is the same with that of the American. It does not, however, like the
American bounty, extend to the importation of undressed flax. It would have been too
great a discouragement to the cultivation of that plant in Great Britain. When this last
bounty was granted, the British and Irish legislatures were not in much better humour
with one another, than the British and American had been before. But this boon to
Ireland, it is to be hoped, has been granted under more fortunate auspices than all
those to America. The same commodities, upon which we thus gave bounties, when
imported from America, were subjected to considerable duties when imported from
any other country. The interest of our American colonies was regarded as the same
with that of the mother country. Their wealth was considered as our wealth. Whatever
money was sent out to them, it was said, came all back to us by the balance of trade, and
we could never become a farthing the poorer by any expense which we could lay out
upon them. They were our own in every respect, and it was an expense laid out upon
the improvement of our own property, and for the profitable employment of our own
people. It is unnecessary, I apprehend, at present to say anything further, in order to
expose the folly of a system which fatal experience has now sufficiently exposed. Had
our American colonies really been a part of Great Britain, those bounties might have
been considered as bounties upon production, and would still have been liable to all the
objections to which such bounties are liable, but to no other.

The exportation of the materials of manufacture is sometimes discouraged by
absolute prohibitions, and sometimes by high duties.

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Our woollen manufacturers have been more successful than any other class of
workmen, in persuading the legislature that the prosperity of the nation depended
upon the success and extension of their particular business. They have not only
obtained a monopoly against the consumers, by an absolute prohibition of importing
woollen cloths from any foreign country; but they have likewise obtained another
monopoly against the sheep farmers and growers of wool, by a similar prohibition
of the exportation of live sheep and wool. The severity of many of the laws which
have been enacted for the security of the revenue is very justly complained of, as
imposing heavy penalties upon actions which, antecedent to the statutes that declared
them to be crimes, had always been understood to be innocent. But the cruellest of our
revenue laws, I will venture to affirm, are mild and gentle, in comparison to some of
those which the clamour of our merchants and manufacturers has extorted from the
legislature, for the support of their own absurd and oppressive monopolies. Like the
laws of Draco, these laws may be said to be all written in blood.

By the 8th of Elizabeth, chap. 3, the exporter of sheep, lambs, or rams, was for the
first offence, to forfeit all his goods for ever, to suffer a year’s imprisonment, and then
to have his left hand cut off in a market town, upon a market day, to be there nailed
up; and for the second offence, to be adjudged a felon, and to suffer death accordingly.
To prevent the breed of our sheep from being propagated in foreign countries, seems
to have been the object of this law. By the 13th and 14th of Charles I. chap. 18, the
exportation of wool was made felony, and the exporter subjected to the same penalties
and forfeitures as a felon.

For the honour of the national humanity, it is to be hoped that neither of these
statutes was ever executed. The first of them, however, so far as I know, has never
been directly repealed, and serjeant Hawkins seems to consider it as still in force. It
may, however, perhaps be considered as virtually repealed by the 12th of Charles II.
chap. 32, sect. 3, which, without expressly taking away the penalties imposed by former
statutes, imposes a new penalty, viz. that of 20s. for every sheep exported, or attempted
to be exported, together with the forfeiture of the sheep, and of the owner’s share of
the sheep. The second of them was expressly repealed by the 7th and 8th of William
III. chap. 28, sect. 4, by which it is declared that “Whereas the statute of the 13th and
14th of king Charles II. made against the exportation of wool, among other things
in the said act mentioned, doth enact the same to be deemed felony, by the severity
of which penalty the prosecution of offenders hath not been so effectually put in
execution; be it therefore enacted, by the authority aforesaid, that so much of the said
act, which relates to the making the said offence felony, be repealed and made void.”

The penalties, however, which are either imposed by this milder statute, or which,
though imposed by former statutes, are not repealed by this one, are still sufficiently
severe. Besides the forfeiture of the goods, the exporter incurs the penalty of 3s. for
every pound weight of wool, either exported or attempted to be exported, that is,
about four or five times the value. Any merchant, or other person convicted of this
offence, is disabled from requiring any debt or account belonging to him from any

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factor or other person. Let his fortune be what it will, whether he is or is not able to
pay those heavy penalties, the law means to ruin him completely. But, as the motals of
the great body of the people are not yet so corrupt as those of the contrivers of this
statute, I have not heard that any advantage has ever been taken of this clause. If the
person convicted of this offence is not able to pay the penalties within three months
after judgment, he is to be transported for seven years; and if he returns before the
expitation of that term, he is liable to the pains of felony, without benefit of clergy.
The owner of the ship, knowing this offence, forfeits all his interest in the ship and
furniture. The master and mariners, knowing this offence, forfeit all their goods and
chattels, and suffer three months imprisonment. By a subsequent statute, the master
suffers six months imprisonment.

In order to prevent exportation, the whole inland commerce of wool is laid under
very burdensome and oppressive restrictions. It cannot be packed in any box, barrel,
cask, case, chest, or any other package, but only in packs of leather or pack-cloth, on
which must be marked on the outside the words WOOL or YARN, in large letters,
not less than three inches long, on pain of forfeiting the same and the package, and
8s. for every pound weight, to be paid by the owner or packer. It cannot be loaden on
any horse or cart, or carried by land within five miles of the coast, but between sun-
rising, and sun-setting, on pain of forfeiting the same, the horses and carriages. The
hundred next adjoining to the sea coast, out of, or through which the wool is carried or
exported, forfeits £20, if the wool is under the value of £10; and if of greater value,
then treble that value, together with treble costs, to be sued for within the year. The
execution to be against any two of the inhabitants, whom the sessions must reimburse,
by an assessment on the other inhabitants, as in the cases of robbery. And if any person
compounds with the hundred for less than this penalty, he is to be imprisoned for five
years; and any other person may prosecute. These regulations take place through the
whole kingdom.

But in the particular counties of Kent and Sussex, the restrictions are still more
troublesome. Every owner of wool within ten miles of the sea coast must give an
account in writing, three days after shearing, to the next officer of the customs, of
the number of his fleeces, and of the places where they are lodged. And before he
removes any part of them, he must give the like notice of the number and weight of
the fleeces, and of the name and abode of the person to whom they are sold, and of
the place to which it is intended they should be carried. No person within fifteen miles
of the sea, in the said counties, can buy any wool, before he enters into bond to the
king, that no part of the wool which he shall so buy shall be sold by him to any other
person within fifteen miles of the sea. If any wool is found carrying towards the sea
side in the said counties, unless it has been entered and security given as aforesaid, it is
forfeited, and the offender also forfeits 3s. for every pound weight, if any person lay
any wool, not entered as aforesaid, within fifteen miles of the sea, it must be seized
and forfeited; and if, after such seizure, any person shall claim the same, he must give
secutity to the exchequer, that if he is cast upon trial he shall pay treble costs, besides

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all other penalties.

When such restrictions are imposed upon the inland trade, the coasting trade, we
may believe, cannot be left very free. Every owner of wool, who carrieth, or causeth to
be carried, any wool to any port or place on the sea coast, in order to be from thence
transported by sea to any other place or port on the coast, must first cause an entry
thereof to be made at the port from whence it is intended to be conveyed, containing
the weight, marks, and number, of the packages, before he brings the same within five
miles of that port, on pain of forfeiting the same, and also the horses, carts, and other
carriages; and also of suffering and forfeiting, as by the other laws in force against
the exportation of wool. This law, however (1st of William II. chap. 32), is so very
indulgent as to declare, that this shall not hinder any person from carrying his wool
home from the place of shearing, though it be within five miles of the sea, provided
that in ten days after shearing, and before he remove the wool, he do under his hand
certify to the next officer of the customs the true number of fleeces, and where it is
housed; and do not remove the same, without certifying to such officer, under his hand,
his intention so to do, three days before. Bond must be given that the wool to be carried
coast-ways is to be landed at the particular port for which it is entered outwards; and
if my part of it is landed without the presence of an officer, not only the forfeiture of
the wool is incurred, as in other goods, but the usual additional penalty of 3s. for every
pound weight is likewise incurred.

Our woollen manufacturers, in order to justify their demand of such extraordinary
restrictions and regulations, confidently asserted, that English wool was of a peculiar
quality, superior to that of any other country; that the wool of other countries could
not, without some mixture of it, be wrought up into any tolerable manufacture; that
fine cloth could not be made without it; that England, therefore, if the exportation of
it could be totally prevented, could monopolize to herself almost the whole woollen
trade of the world; and thus, having no rivals, could sell at what price she pleased, and
in a short time acquire the most incredible degree of wealth by the most advantageous
balance of trade. This doctrine, like most other doctrines which are confidently asserted
by any considerable number of people, was, and still continues to be, most implicitly
believed by a much greater number: by almost all those who are either unacquainted
with the woollen trade, or who have not made particular inquiries. It is, however, so
perfectly false, that English wool is in any respect necessary for the making of fine cloth,
that it is altogether unfit for it. Fine cloth is made altogether of Spanish wool. English
wool, cannot be even so mixed with Spanish wool, as to enter into the composition
without spoiling and degrading, in some degree, the fabric of the cloth.

It has been shown in the foregoing part of this work, that the effect of these
regulations has been to depress the price of English wool, not only below what it
naturally would be in the present times, but very much below what it actually was
in the time of Edward III. The price of Scotch wool, when, in consequence of the
Union, it became subject to the same regulations, is said to have fallen about one half.
It is observed by the very accurate and intelligent author of the Memoirs of Wool,

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the Reverend Mr. John Smith, that the price of the best English wool in England, is
generally below what wool of a very inferior quality commonly sells for in the market
of Amsterdam. To depress the price of this commodity below what may be called
its natural and proper price, was the avowed purpose of those regulations; and there
seems to be no doubt of their having produced the effect that was expected from them.

This reduction of price, it may perhaps be thought, by discouraging the growing
of wool, must have reduced very much the annual produce of that commodity, though
not below what it formerly was, yet below what, in the present state of things, it would
probably have been, had it, in consequence of an open and free market, been allowed
to rise to the natural and proper price. I am, however, disposed to believe, that the
quantity of the annual produce cannot have been much, though it may, perhaps, have
been a little affected by these regulations. The growing of wool is not the chief purpose
for which the sheep farmer employs his industry and stock. He expects his profit, not
so much from the price of the fleece, as from that of the carcase; and the average
or ordinary price of the latter must even, in many cases, make up to him whatever
deficiency there may be in the average or ordinary price of the former. It has been
observed, in the foregoing part of this work, that ‘whatever regulations tend to sink
the price, either of wool or of raw hides, below what it naturally would be, must, in an
improved and cultivated country, have some tendency to raise the price of butchet’s
meat. The price, both of the great and small cattle which are fed on improved and
cultivated land, must be sufficient to pay the rent which the landlord, and the profit
which the farmer, has reason to expect from improved and cultivated land. If it 1s not,
they will soon cease to feed them. Whatever part of this price, therefore, is not paid by
the wool and the hide, must be paid by the carcase. The less there is paid for the one,
the more must be paid for the other. In what manner this price is to be divided upon
the different parts of the beast, is indifferent to the landlords and farmers, provided
it is all paid to them. In an improved and cultivated country, therefore, their interest
as landlords and farmers cannot be much affected by such regulations, though their
interest as consumers may, by the rise in the price of provisions.’ According to this
reasoning, therefore, this degradation in the price of wool is not likely, in an improved
and cultivated country, to occasion any diminution in the annual produce of that
commodity; except so far as, by raising the price of mutton, it may somewhat diminish
the demand for, and consequently the production of, that particular species of butchet’s
meat, Its effect, however, even in this way, it is probable, is not very considerable.

But though its effect upon the quantity of the annual produce may not have
been very considerable, its effect upon the quality, it may perhaps be thought, must
necessarily have been very great. The degradation in the quality of English wool, if
not below what it was in former times, yet below what it naturally would have been
in the present state of improvement and cultivation, must have been, it may perhaps
be supposed, very nearly in proportion to the degradation of price. As the quality
depends upon the breed, upon the pasture, and upon the management and cleanliness
of the sheep, during the whole progress of the growth of the fleece, the attention to

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these circumstances, it may naturally enough be imagined, can never be greater than
in proportion to the recompence which the price of the fleece is likely to make for
the labour and expense which that attention requires. It happens, however, that the
goodness of the fleece depends, in a great measure, upon the health, growth, and
bulk of the animal: the same attention which is necessary for the improvement of
the catcase is, in some respect, sufficient for that of the fleece. Notwithstanding the
degradation of price, English wool is said to have been improved considerably during
the course even of the present century. The improvement, might, perhaps, have been
greater if the price had been better; but the lowness of price, though it may have
obstructed, yet certainly it has not altogether prevented that improvement.

The violence of these regulations, therefore, seems to have affected neither the
quantity nor the quality of the annual produce of wool, so much as it might have been
expected to do (though I think it probable that it may have affected the latter a good
deal more than the former); and the interest of the growers of wool, though it must
have been hurt in some degree, seems upon the whole, to have been much less hurt
than could well have been imagined.

These considerations, however, will not justify the absolute prohibition of the
exportation of wool; but they will fully justify the imposition of a considerable tax
upon that exportation.

To hurt, in any degree, the interest of any one order of citizens, for no other purpose
but to promote that of some other, is evidently contrary to that justice and equality of
treatment which the sovereign owes to all the different orders of his subjects. But the
prohibition certainly hurts, in some degree, the interest of the growers of wool, for no
other purpose but to promote that of the manufacturers.

Every different order of citizens is bound to contribute to the support of the
sovereign or commonwealth. A tax of five, or even of ten shillings, upon the exportation
of every tod of wool, would produce a very considerable revenue to the sovereign. It
would hurt the interest of the growers somewhat less than the prohibition, because it
would not probably lower the price of wool quite so much. It would afford a sufficient
advantage to the manufacturer, because, though he might not buy his wool altogether
so cheap as under the prohibition, he would still buy it at least five or ten shillings
cheaper than any foreign manufacturer could buy it, besides saving the freight and
insurance which the other would be obliged to pay. It is scarce possible to devise a tax
which could produce any considerable revenue to the sovereign, and at the same time
occasion so little inconveniency to anybody.

The prohibition, notwithstanding all the penalties which guard it, does not prevent
the exportation of wool. It is exported, it is well known, in great quantities. The great
difference between the price in the home and that in the foreign market, presents such
a temptation to smuggling, that all the rigour of the law cannot prevent it. This illegal
exportation is advantageous to nobody but the smuggler. A legal exportation, subject
to a tax, by affording a revenue to the sovereign, and thereby saving the imposition
of some other, perhaps more burdensome and inconvenient taxes, might prove

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advantageous to all the different subjects of the state.

The exportation of fuller’s earth, or fullet’s clay, supposed to be necessary for
preparing and cleansing the woollen manufactures, has been subjected to nearly the same
penalties as the exportation of wool. Even tobacco-pipe clay, though acknowledged to
be different from fuller’s clay, yet, on account of their resemblance, and because fuller’s
clay might sometimes be exported as tobacco-pipe clay, has been laid under the same
prohibitions and penalties.

By the 13th and 14th of Charles II. chap, 7, the exportation, not only of raw
hides, but of tanned leather, except in the shape of boots, shoes, or slippers, was
prohibited; and the law gave a monopoly to our boot-makers and shoe-makers, not
only against our graziers, but against our tanners. By subsequent statutes, our tanners
have got themselves exempted from this monopoly, upon paying a small tax of only
one shilling on the hundred weight of tanned leather, weighing one hundred and twelve
pounds. They have obtained likewise the drawback of two-thirds of the excise duties
imposed upon their commodity, even when exported without further manufacture. All
manufactures of leather may be exported duty free; and the exporter is besides entitled
to the drawback of the whole duties of excise. Our graziers still continue subject
to the old monopoly. Graziers, separated from one another, and dispersed through
all the different corners of the country, cannot, without great difficulty, combine
together for the purpose either of imposing monopolies upon their fellow-citizens, or
of exempting themselves from such as may have been imposed upon them by other
people. Manufacturers of all kinds, collected together in numerous bodies in all great
cities, easily can. Even the horns of cattle are prohibited to be exported; and the two
insignificant trades of the horner and comb-maker enjoy, in this respect, a monopoly
against the graziers.

Restraints, either by prohibitions, or by taxes, upon the exportation of goods which
are partially, but not completely manufactured, are not peculiar to the manufacture
of leather. As long as anything remains to be done, in order to fit any commodity for
immediate use and consumption, our manufacturers think that they themselves ought
to have the doing of it. Woollen yarn and worsted are prohibited to be exported, under
the same penalties as wool even white cloths we subject to a duty upon exportation;
and our dyers have so far obtained a monopoly against our clothiers. Our clothiers
would probably have been able to defend themselves against it; but it happens that the
greater part of our principal clothiers are themselves likewise dyers. Watch-cases, clock-
cases, and dial-plates for clocks and watches, have been prohibited to be exported. Our
clock-makers and watch-makers are, it seems, unwilling that the price of this sort of
workmanship should be raised upon them by the competition of foreigners.

By some old statutes of Edward HI, Henry VIL and Edward VI. the exportation
of all metals was prohibited. Lead and tin were alone excepted, probably on account of
the great abundance of those metals; in the exportation of which a considerable part
of the trade of the kingdom in those days consisted. For the encouragement of the
mining trade, the 5th of William and Mary, chap.17, exempted from this prohibition

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iron, copper, and mundic metal made from British ore. The exportation of all sorts of
copper bars, foreign as well as British, was afterwards permitted by the 9th and 10th of
William III. chap 26. The exportation of unmanufactured brass, of what is called gun-
metal, bell-metal, and shroff metal, still continues to be prohibited. Brass manufactures
of all sorts may be exported duty free.

The exportation of the materials of manufacture, where it is not altogether
prohibited, is, in many cases, subjected to considerable duties.

By the 8th Geo. I. chap.15, the exportation of all goods, the produce of manufacture
of Great Britain, upon which any duties had been imposed by former statutes, was
rendered duty free. The following goods, however, were excepted: alum, lead, lead-ore,
tin, tanned leather, copperas, coals, wool, cards, white woollen cloths, lapis calaminaris,
skins of all sorts, glue, coney hair or wool, hares wool, hair of all sorts, horses, and
litharge of lead. If you except horses, all these are either materials of manufacture,
or incomplete manufactures (which may be considered as materials for still further
manufacture), or instruments of trade. This statute leaves them subject to all the old
duties which had ever been imposed upon them, the old subsidy, and one per cent.
outwards.

By the same statute, a great number of foreign drugs for dyers use are exempted
from all duties upon importation. Each of them, however, is afterwards subjected to a
certain duty, not indeed a very heavy one, upon exportation. Our dyers, it seems, while
they thought it for their interest to encourage the importation of those drugs, by an
exemption from all duties, thought it likewise for their own interest to throw some
small discouragement upon their exportation. The avidity, however, which suggested
this notable piece of mercantile ingenuity, most probably disappointed itself of its
object. It necessarily taught the importers to be more careful than they might otherwise
have been, that their importation should not exceed what was necessary for the supply
of the home market. The home market was at all times likely to be more scantily
supplied; the commodities were at all times likely to be somewhat dearer there than
they would have been, had the exportation been rendered as free as the importation.

By the above-mentioned statute, gum senega, or gum arabic, being among the
enumerated dyeing drugs, might be imported duty free. They were subjected, indeed,
to a small poundage duty, amounting only to threepence in the hundred weight, upon
their re-exportation. France enjoyed, at that time, an exclusive trade to the country
most productive of those drugs, that which lies in the neighbourhood of the Senegal;
and the British market could not be easily supplied by the immediate importation of
them from the place of growth. By the 25th Geo. IL. therefore, gum senega was allowed
to be imported (contrary to the general dispositions of the act of navigation) from any
part of Europe. As the law, however, did not mean to encourage this species of trade,
so contrary to the general principles of the mercantile policy of England, it imposed a
duty of ten shillings the hundred weight upon such importation, and no part of this duty
was to be afterwards drawn back upon its exportation. The successful war which began
in 1755 gave Great Britain the same exclusive trade to those countries which France

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had enjoyed before. Our manufactures, as soon as the peace was made, endeavoured to
avail themselves of this advantage, and to establish a monopoly in their own favour both
against the growers and against the importers of this commodity. By the 5th of Geo.
III. therefore, chap. 37, the exportation of gum senega, from his majesty’s dominions
in Africa, was confined to Great Britain, and was subjected to all the same restrictions,
regulations, forfeitures, and penalties, as that of the enumerated commodities of the
British colonies in America and the West Indies. Its importation, indeed, was subjected
to a small duty of sixpence the hundred weight; but its re-exportation was subjected to
the enormous duty of one pound ten shillings the hundred weight. It was the intention
of our manufacturers, that the whole produce of those countries should be imported
into Great Britain; and in order that they themselves might be enabled to buy it at
their own price, that no part of it should be exported again, but at such an expense
as would sufficiently discourage that exportation. Their avidity, however, upon this, as
well as upon many other occasions, disappointed itself of its object. This enormous
duty presented such a temptation to smuggling, that great quantities of this commodity
were clandestinely exported, probably to all the manufacturing countries of Europe,
but particularly to Holland, not only from Great Britain, but from Africa. Upon this
account, by the 14th Geo. III. chap.10, this duty upon exportation was reduced to five
shillings the hundred weight.

In the book of rates, according to which the old subsidy was levied, beaver skins
were estimated at six shillings and eight pence a piece; and the different subsidies and
imposts which, before the year 1722, had been laid upon their importation, amounted
to one-fifth part of the rate, or to sixteen pence upon each skin; all of which, except
half the old subsidy, amounting only to twopence, was drawn back upon exportation.
This duty, upon the importation of so important a material of manufacture, had been
thought too high; and, in the year 1722, the rate was reduced to two shillings and
sixpence, which reduced the duty upon importation to sixpence, and of this only one-
half was to be drawn back upon exportation. The same successful war put the country
most productive of beaver under the dominion of Great Britain; and beaver skins being
among the enumerated commodities, the exportation from America was consequently
confined to the market of Great Britain. Our manufacturers soon bethought themselves
of the advantage which they might make of this circumstance; and in the year 1764, the
duty upon the importation of beaver skin was reduced to one penny, but the duty upon
exportation was raised to sevenpence each skin, without any drawback of the duty
upon importation. By the same law, a duty of eighteen pence the pound was imposed
upon the exportation of beaver wool or woumbs, without making any alteration in the
duty upon the importation of that commodity, which, when imported by British, and in
British shipping, amounted at that time to between fourpence and fivepence the piece.

Coals may be considered both as a material of manufacture, and as an instrument of
trade. Heavy duties, accordingly, have been imposed upon their exportation, amounting
at present (1783) to more than five shillings the ton, ot more than fifteen shillings the
chaldron, Newcastle measure; which is, in most cases, more than the original value of

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THE WEALTH OF NATIONS

the commodity at the coal-pit, or even at the shipping port for exportation.

The exportation, however, of the instruments of trade, properly so called, is
commonly restrained, not by high duties, but by absolute prohibitions. Thus, by the 7th
and 8th of William HI chap.20, sect.8, the exportation of frames or engines for knitting
gloves or stockings, is prohibited, under the penalty, not only of the forfeiture of such
frames or engines, so exported, or attempted to be exported, but of forty pounds, one
half to the king, the other to the person who shall inform or sue for the same. In the
same manner, by the 14th Geo. II. chap. 71, the exportation to foreign parts, of any
utensils made use of in the cotton, linen, woollen, and silk manufactures, is prohibited
under the penalty, not only of the forfeiture of such utensils, but of two hundred
pounds, to be paid by the person who shall offend in this manner; and likewise of two
hundred pounds, to be paid by the master of the ship, who shall knowingly suffer such
utensils to be loaded on board his ship.

When such heavy penalties were imposed upon the exportation of the dead
instruments of trade, it could not well be expected that the living instrument, the
attificer, should be allowed to go free. Accordingly, by the 5th Geo. I. chap. 27, the
person who shall be convicted of enticing any artificer, of or in any of the manufactures
of Great Britain, to go into any foreign parts, in order to practise or teach his trade, is
liable, for the first offence, to be fined in any sum not exceeding one hundred pounds,
and to three months imprisonment, and until the fine shall be paid; and for the second
offence, to be fined in any sum, at the discretion of the court, and to imprisonment
for twelve months, and until the fine shall be paid. By the 23d Geo. I. chap. 13, this
penalty is increased, for the first offence, to five hundred pounds for every artificer so
enticed, and to twelve months imprisonment, and until the fine shall be paid; and for
the second offence, to one thousand pounds, and to two years imprisonment, and until
the fine shall be paid.

By the former of these two statutes, upon proof that any person has been enticing
any artificer, or that any artificer has promised or contracted to go into foreign parts, for
the purposes aforesaid, such artificer may be obliged to give security, at the discretion
of the court, that he shall not go beyond the seas, and may be committed to prison
until he give such security.

If any artificer has gone beyond the seas, and is exercising or teaching his trade in
any foreign country, upon warning being given to him by any of his majesty’s ministers
or consuls abroad, or by one of his majesty’s secretaries of state, for the time being,
if he does not, within six months after such warning, return into this realm, and from
henceforth abide and inhabit continually within the same, he is from thenceforth
declared incapable of taking any legacy devised to him within this kingdom, or of being
executor or administrator to any person, or of taking any lands within this kingdom,
by descent, devise, or purchase. He likewise forfeits to the king all his lands, goods, and
chattels; is declared an alien in every respect; and is put out of the kine’s protection.

It is unnecessary, I imagine, to observe how contrary such regulations are to the
boasted liberty of the subject, of which we affect to be so very jealous; but which, in this

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case, is so plainly sacrificed to the futile interests of our merchants and manufacturers.

The laudable motive of all these regulations, is to extend our own manufactures,
not by their own improvement, but by the depression of those of all our neighbours,
and by putting an end, as much as possible, to the troublesome competition of such
odious and disagreeable rivals. Our master manufacturers think it reasonable that they
themselves should have the monopoly of the ingenuity of all their countrymen. Though
by restraining, in some trades, the number of apprentices which can be employed at
one time, and by imposing the necessity of a long apprenticeship in all trades, they
endeavour, all of them, to confine the knowledge of their respective employments to
as small a number as possible; they are unwilling, however, that any part of this small
number should go abroad to instruct foreigners.

Consumption is the sole end and purpose of all production; and the interest of
the producer ought to be attended to, only so far as it may be necessary for promoting
that of the consumer.

The maxim is so perfectly self-evident, that it would be absurd to attempt to prove
it. But in the mercantile system, the interest of the consumer is almost constantly
sacrificed to that of the producer; and it seems to consider production, and not
consumption, as the ultimate end and object of all industry and commertce.

In the restraints upon the importation of all foreign commodities which can come
into competition with those of our own growth or manufacture, the interest of the
home consumer is evidently sacrificed to that of the producer. It is altogether for the
benefit of the latter, that the former is obliged to pay that enhancement of price which
this monopoly almost always occasions.

It is altogether for the benefit of the producer, that bounties are granted upon the
exportation of some of his productions. The home consumer 1s obliged to pay, first the
tax which is necessary for paying the bounty; and, secondly, the still greater tax which
necessarily arises from the enhancement of the price of the commodity in the home
market.

By the famous treaty of commerce with Portugal, the consumer is prevented
by duties from purchasing of a neighbouring country, a commodity which our own
climate does not produce; but is obliged to purchase it of a distant country, though it
is acknowledged, that the commodity of the distant country is of a worse quality than
that of the near one. The home consumer is obliged to submit to this inconvenience, in
order that the producer may import into the distant country some of his productions,
upon more advantageous terms than he otherwise would have been allowed to do.
The consumer, too, is obliged to pay whatever enhancement in the price of those very
productions this forced exportation may occasion in the home market.

But in the system of laws which has been established for the management of
our American and West Indian colonies, the interest of the home consumer has been
sacrificed to that of the producer, with a more extravagant profusion than in all our
other commercial regulations. A great empire has been established for the sole purpose
of raising up a nation of customers, who should be obliged to buy, from the shops of

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our different producers, all the goods with which these could supply them. For the sake
of that little enhancement of price which this monopoly might afford our producers,
the home consumers have been burdened with the whole expense of maintaining and
defending that empire. For this purpose, and for this purpose only, in the two last
wars, more than two hundred millions have been spent, and a new debt of more than
a hundred and seventy millions has been contracted, over and above all that had been
expended for the same purpose in former wars. The interest of this debt alone is not
only greater than the whole extraordinary profit which, it never could be pretended,
was made by the monopoly of the colony trade, but than the whole value of that trade,
or than the whole value of the goods which, at an average, have been annually exported
to the colonies.

It cannot be very difficult to determine who have been the contrivers of this
whole mercantile system; not the consumers, we may believe, whose interest has been
entirely neglected; but the producers, whose interest has been so carefully attended
to; and among this latter class, our merchants and manufacturers have been by far the
principal architects. In the mercantile regulations which have been taken notice of
in this chapter, the interest of our manufacturers has been most peculiarly attended
to; and the interest, not so much of the consumers, as that of some other sets of
producers, has been sacrificed to it.

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CHAPTER IX.

OF THE AGRICULTURAL
SYSTEMS, OR OF THOSE SYSTEMS
OF POLITICAL ECONOMY WHICH

REPRESENT THE PRODUCE OF
LAND, AS EITHER THE SOLE
OR THE PRINCIPAL SOURCE OF
THE REVENUE AND WEALTH OF
EVERY COUNTRY.

he agricultural systems of political economy will not require so long an explanation
as that which I have thought it necessary to bestow upon the mercantile or
commercial system.

That system which represents the produce of land as the sole source of the revenue
and wealth of every country, has so far as I know, never been adopted by any nation,
and it at present exists only in the speculations of a few men of great learning and
ingenuity in France. It would not, surely, be worth while to examine at great length the
errors of a system which never has done, and probably never will do, any harm in any
part of the world. I shall endeavour to explain, however, as distinctly as I can, the great
outlines of this very ingenious system.

Mr. Colbert, the famous minister of Lewis XIV. was a man of probity, of great
industry, and knowledge of detail; of great experience and acuteness in the examination
of public accounts; and of abilities, in short, every way fitted for introducing method
and good order into the collection and expenditure of the public revenue. That
minister had unfortunately embraced all the prejudices of the mercantile system, in
its nature and essence a system of restraint and regulation, and such as could scarce
fail to be agreeable to a laborious and plodding man of business, who had been
accustomed to regulate the different departments of public offices, and to establish the
necessary checks and controls for confining each to its proper sphere. The industry and
commerce of a great country, he endeavoured to regulate upon the same model as the

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THE WEALTH OF NATIONS

departments of a public office; and instead of allowing every man to pursue his own
interest his own way, upon the liberal plan of equality, liberty, and justice, he bestowed
upon certain branches of industry extraordinary privileges, while he laid others under
as extraordinary restraints. He was not only disposed, like other European ministers,
to encourage more the industry of the towns than that of the country; but, in otder
to support the industry of the towns, he was willing even to depress and keep down
that of the country. In order to render provisions cheap to the inhabitants of the
towns, and thereby to encourage manufactures and foreign commerce, he prohibited
altogether the exportation of corn, and thus excluded the inhabitants of the country
from every foreign market, for by far the most important part of the produce of their
industry. This prohibition, joined to the restraints imposed by the ancient provincial
laws of France upon the transportation of corn from one province to another, and
to the arbitrary and degrading taxes which are levied upon the cultivators in almost all
the provinces, discouraged and kept down the agriculture of that country very much
below the state to which it would naturally have risen in so very fertile a soil, and so
very happy a climate. This state of discouragement and depression was felt more or
less in every different part of the country, and many different inquiries were set on
foot concerning the causes of it. One of those causes appeared to be the preference
given, by the institutions of Mr. Colbert, to the industry of the towns above that of
the country.

If the rod be bent too much one way, says the proverb, in order to make it straight,
you must bend it as much the other. The French philosophers, who have proposed the
system which represents agriculture as the sole source of the revenue and wealth of
every country, seem to have adopted this proverbial maxim; and, as in the plan of Mr.
Colbert, the industry of the towns was certainly overvalued in comparison with that of
the country, so in their system it seems to be as certainly under-valued.

The different orders of people, who have ever been supposed to contribute in
any respect towards the annual produce of the land and labour of the country, they
divide into three classes. The first is the class of the proprietors of land. The second
is the class of the cultivators, of farmers and country labourers, whom they honour
with the peculiar appellation of the productive class. The third is the class of artificers,
manufacturers, and merchants, whom they endeavour to degrade by the humiliating
appellation of the barren or unproductive class.

The class of proprietors contributes to the annual produce, by the expense which
they may occasionally lay out upon the improvement of the land, upon the buildings,
drains, inclosures, and other ameliorations, which they may either make or maintain
upon it, and by means of which the cultivators are enabled, with the same capital, to
raise a greater produce, and consequently to pay a greater rent. This advanced rent
may be considered as the interest or profit due to the proprietor, upon the expense or
capital which he thus employs in the improvement of his land. Such expenses are in
this system called ground expenses (depenses foncieres).

The cultivators or farmers contribute to the annual produce, by what are in this

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system called the original and annual expenses (depenses primitives, et depenses
annuelles), which they lay out upon the cultivation of the land. The original expenses
consist in the instruments of husbandry, in the stock of cattle, in the seed, and in the
maintenance of the farmer’s family, servants, and cattle, during at least a great part of
the first year of his occupancy, or till he can receive some return from the land. The
annual expenses consist in the seed, in the wear and tear of instruments of husbandry,
and in the annual maintenance of the farmer’s servants and cattle, and of his family too,
so far as any part of them can be considered as servants employed in cultivation. That
part of the produce of the land which remains to him after paying the rent, ought to
be sufficient, first, to replace to him, within a reasonable time, at least during the term
of his occupancy, the whole of his original expenses, together with the ordinary profits
of stock; and, secondly, to replace to him annually the whole of his annual expenses,
together likewise with the ordinary profits of stock. Those two sorts of expenses are
two capitals which the farmer employs in cultivation; and unless they are regularly
restored to him, together with a reasonable profit, he cannot carry on his employment
upon a level with other employments; but, from a regard to his own interest, must
desert it as soon as possible, and seek some other. That part of the produce of the land
which is thus necessary for enabling the farmer to continue his business, ought to be
considered as a fund sacred to cultivation, which, if the landlord violates, he necessarily
reduces the produce of his own land, and, in a few years, not only disables the farmer
from paying this racked rent, but from paying the reasonable rent which he might
otherwise have got for his land. The rent which properly belongs to the landlord, is no
more than the neat produce which remains after paying, in the completest manner, all
the necessary expenses which must be previously laid out, in order to raise the gross or
the whole produce. It is because the labour of the cultivators, over and above paying
completely all those necessary expenses, affords a neat produce of this kind, that this
class of people are in this system peculiarly distinguished by the honourable appellation
of the productive class. Their original and annual expenses are for the same reason
called, In this system, productive expenses, because, over and above replacing their
own value, they occasion the annual reproduction of this neat produce.

The ground expenses, as they are called, or what the landlord lays out upon the
improvement of his land, are, in this system, too, honoured with the appellation of
productive expenses. Till the whole of those expenses, together with the ordinary
profits of stock, have been completely repaid to him by the advanced rent which he
gets from his land, that advanced rent ought to be regarded as sacred and inviolable,
both by the church and by the king; ought to be subject neither to tithe nor to taxation.
If it is otherwise, by discouraging the improvement of land, the church discourages
the future increase of her own tithes, and the king the future increase of his own taxes.
As in a well ordered state of things, therefore, those ground expenses, over and above
reproducing in the completest manner their own value, occasion likewise, after a certain
time, a reproduction of a neat produce, they are in this system considered as productive

expenses.

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The ground expenses of the landlord, however, together with the original and the
annual expenses of the farmer, are the only three sorts of expenses which in this system
are considered as productive. All other expenses, and all other orders of people, even
those who, in the common apprehensions of men, are regarded as the most productive,
are, in this account of things, represented as altogether barren and unproductive.

Artificers and manufacturers, in particular, whose industry, in the common
apprehensions of men, increases so much the value of the rude produce of land, are in
this system represented as a class of people altogether barren and unproductive. Their
labour, it is said, replaces only the stock which employs them, together with its ordinary
profits. That stock consists in the materials, tools, and wages, advanced to them by
their employer; and is the fund destined for their employment and maintenance. Its
profits are the fund destined for the maintenance of their employer. Their employer,
as he advances to them the stock of materials, tools, and wages, necessary for their
employment, so he advances to himself what is necessary for his own maintenance;
and this maintenance he generally proportions to the profit which he expects to make
by the price of their work. Unless its price repays to him the maintenance which he
advances to himself, as well as the materials, tools, and wages, which he advances to his
workmen, it evidently does not repay to him the whole expense which he lays out upon
it. The profits of manufacturing stock, therefore, are not, like the rent of land, a neat
produce which remains after completely repaying the whole expense which must be laid
out in order to obtain them. The stock of the farmer yields him a profit, as well as that
of the master manufacturer; and it yields a rent likewise to another person, which that
of the master manufacturer does not. The expense, therefore, laid out in employing and
maintaining artificers and manufacturers, does no more than continue, if one may say
so, the existence of its own value, and does not produce any new value. It is, therefore,
altogether a barren and unproductive expense. The expense, on the contrary, laid out
in employing farmers and country labourers, over and above continuing the existence
of its own value, produces a new value the rent of the landlord. It is, therefore, a
productive expense.

Mercantile stock is equally barren and unproductive with manufacturing stock. It
only continues the existence of its own value, without producing any new value. Its
profits are only the repayment of the maintenance which its employer advances to
himself during the time that he employs it, or till he receives the returns of it. They are
only the repayment of a part of the expense which must be laid out in employing it.

The labour of artificers and manufacturers never adds any thing to the value of
the whole annual amount of the rude produce of the land. It adds, indeed, greatly to
the value of some particular parts of it. But the consumption which, in the mean time,
it occasions of other parts, is precisely equal to the value which it adds to those parts;
so that the value of the whole amount is not, at any one moment of time, in the least
augmented by it. The person who works the lace of a pair of fine ruffles for example,
will sometimes raise the value of, perhaps, a pennyworth of flax to £30 sterling, But
though, at first sight, he appears thereby to multiply the value of a part of the rude

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produce about seven thousand and two hundred times, he in reality adds nothing to
the value of the whole annual amount of the rude produce. The working of that lace
costs him, perhaps, two years labour. The £30 which he gets for it when it is finished,
is no more than the repayment of the subsistence which he advances to himself during
the two years that he is employed about it. The value which, by every day’s, month’s,
or year’s labour, he adds to the flax, does no more than replace the value of his own
consumption during that day, month, or year. At no moment of time, therefore, does
he add any thing to the value of the whole annual amount of the rude produce of the
land: the portion of that produce which he is continually consuming, being always
equal to the value which he is continually producing. The extreme poverty of the
greater part of the persons employed in this expensive, though trifling manufacture,
may Satisfy us that the price of their work does not, in ordinary cases, exceed the value
of their subsistence. It is otherwise with the work of farmers and country labourers.
The rent of the landlord is a value which, in ordinary cases, it is continually producing
over and above replacing, in the most complete manner, the whole consumption, the
whole expense laid out upon the employment and maintenance both of the workmen
and of their employer.

Artificers, manufacturers, and merchants, can augment the revenue and wealth of
their society by parsimony only; or, as it is expressed in this system, by privation, that
is, by depriving themselves of a part of the funds destined for their own subsistence.
They annually reproduce nothing but those funds. Unless, therefore, they annually save
some part of them, unless they annually deprive themselves of the enjoyment of some
part of them, the revenue and wealth of their society can never be, in the smallest
degree, augmented by means of their industry. Farmers and country labourers, on the
contrary, may enjoy completely the whole funds destined for their own subsistence,
and yet augment, at the same time, the revenue and wealth of their society. Over and
above what is destined for their own subsistence, their industry annually affords a neat
produce, of which the augmentation necessarily augments the revenue and wealth
of their society. Nations, therefore, which, like France or England, consist in a great
measure, of proprietors and cultivators, can be enriched by industry and enjoyment.
Nations, on the contrary, which, like Holland and Hamburgh, are composed chiefly of
merchants, artificers, and manufacturers, can grow rich only through parsimony and
privation. As the interest of nations so differently circumstanced is very different, so
is likewise the common character of the people. In those of the former kind, liberality,
frankness, and good fellowship, naturally make a part of their common character; in
the latter, narrowness, meanness, and a selfish disposition, averse to all social pleasure
and enjoyment.

The unproductive class, that of merchants, artificers, and manufacturers, 1s
maintained and employed altogether at the expense of the two other classes, of that
of proprietors, and of that of cultivators. They furnish it both with the materials of its
work, and with the fund of its subsistence, with the corn and cattle which it consumes
while it is employed about that work. The proprietors and cultivators finally pay both

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THE WEALTH OF NATIONS

the wages of all the workmen of the unproductive class, and the profits of all their
employers. Those workmen and their employers are properly the servants of the
proprietors and cultivators. They are only servants who work without doors, as menial
servants work within. Both the one and the other, however, are equally maintained at
the expense of the same masters. The labour of both is equally unproductive. It adds
nothing to the value of the sum total of the rude produce of the land. Instead of
increasing the value of that sum total, it is a charge and expense which must be paid
out of it.

The unproductive class, however, is not only useful, but greatly useful, to the other
two classes. By means of the industry of merchants, artificers, and manufacturers, the
proprietors and cultivators can purchase both the foreign goods and the manufactured
produce of their own country, which they have occasion for, with the produce of
a much smaller quantity of their own labour, than what they would be obliged to
employ, if they were to attempt, in an awkward and unskilful manner, either to import
the one, or to make the other, for their own use. By means of the unproductive
class, the cultivators are delivered from many cares, which would otherwise distract
their attention from the cultivation of land. The superiority of produce, which in
consequence of this undivided attention, they are enabled to raise, is fully sufficient to
pay the whole expense which the maintenance and employment of the unproductive
class costs either the proprietors or themselves. The industry of merchants, artificers,
and manufacturers, though in its own nature altogether unproductive, yet contributes
in this manner indirectly to increase the produce of the land. It increases the productive
powers of productive labour, by leaving it at liberty to confine itself to its proper
employment, the cultivation of land; and the plough goes frequently the easier and the
better, by means of the labour of the man whose business is most remote from the
plough.

It can never be the interest of the proprietors and cultivators, to restrain or to
discourage, in any respect, the industry of merchants, artificers, and manufacturers.
The greater the liberty which this unproductive class enjoys, the greater will be the
competition in all the different trades which compose it, and the cheaper will the other
two classes be supplied, both with foreign goods and with the manufactured produce
of their own country.

It can never be the interest of the unproductive class to oppress the other two
classes. It is the surplus produce of the land, or what remains after deducting the
maintenance, first of the cultivators, and afterwards of the proprietors, that maintains
and employs the unproductive class. The greater this surplus, the greater must likewise
be the maintenance and employment of that class. The establishment of perfect
justice, of perfect liberty, and of perfect equality, is the very simple secret which most
effectually secures the highest degree of prosperity to all the three classes.

The merchants, artificers, and manufacturers of those mercantile states, which,
like Holland and Hamburgh, consist chiefly of this unproductive class, are in the same
manner maintained and employed altogether at the expense of the proprietors and

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cultivators of land. The only difference is, that those proprietors and cultivators are,
the greater part of them, placed at a most inconvenient distance from the merchants,
artificers, and manufacturers, whom they supply with the materials of their work and
the fund of their subsistence; are the inhabitants of other countries, and the subjects
of other governments.

Such mercantile states, however, are not only useful, but greatly useful, to the
inhabitants of those other countries. They fill up, in some measure, a very important
void; and supply the place of the merchants, artificers, and manufacturers, whom the
inhabitants of those countries ought to find at home, but whom, from some defect in
their policy, they do not find at home.

It can never be the interest of those landed nations, if I may call them so, to
discourage or distress the industry of such mercantile states, by imposing high duties
upon their trade, or upon the commodities which they furnish. Such duties, by
rendering those commodities dearer, could serve only to sink the real value of the
surplus produce of their own land, with which, or, what comes to the same thing, with
the price of which those commodities are purchased. Such duties could only serve to
discourage the increase of that surplus produce, and consequently the improvement
and cultivation of their own land. The most effectual expedient, on the contrary, for
raising the value of that surplus produce, for encouraging its increase, and consequently
the improvement and cultivation of their own land, would be to allow the most perfect
freedom to the trade of all such mercantile nations.

This perfect freedom of trade would even be the most effectual expedient for
supplying them, in due time, with all the artificers, manufacturers, and merchants,
whom they wanted at home; and for filling up, in the properest and most advantageous
manner, that very important void which they felt there.

The continual increase of the surplus produce of their land would, in due time,
create a greater capital than what would be employed with the ordinary rate of profit
in the improvement and cultivation of land; and the surplus part of it would naturally
turn itself to the employment of artificers and manufacturers, at home. But these
artificers and manufacturers, finding at home both the materials of their work and the
fund of their subsistence, might immediately, even with much less art and skill be able
to work as cheap as the little artificers and manufacturers of such mercantile states,
who had both to bring from a greater distance. Even though, from want of art and
skill, they might not for some time be able to work as cheap, yet, finding a market at
home, they might be able to sell their work there as cheap as that of the artificers and
manufacturers of such mercantile states, which could not be brought to that market but
from so great a distance; and as their art and skill improved, they would soon be able
to sell it cheaper. The artificers and manufacturers of such mercantile states, therefore,
would immediately be rivalled in the market of those landed nations, and soon after
undersold and justled out of it altogether. The cheapness of the manufactures of those
landed nations, in consequence of the gradual improvements of art and skill, would, in
due time, extend their sale beyond the home market, and carry them to many foreign

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THE WEALTH OF NATIONS

markets, from which they would, in the same manner, gradually justle out many of the
manufacturers of such mercantile nations.

This continual increase, both of the rude and manufactured produce of those
landed nations, would, in due time, create a greater capital than could, with the ordinary
rate of profit, be employed either in agriculture or in manufactures. The surplus of this
capital would naturally turn itself to foreign trade and be employed in exporting, to
foreign countries, such parts of the rude and manufactured produce of its own country,
as exceeded the demand of the home market. In the exportation of the produce of
their own country, the merchants of a landed nation would have an advantage of the
same kind over those of mercantile nations, which its artificers and manufacturers
had over the artificers and manufacturers of such nations; the advantage of finding
at home that cargo, and those stores and provisions, which the others were obliged to
seek for at a distance. With inferior art and skill in navigation, therefore, they would be
able to sell that cargo as cheap in foreign markets as the merchants of such mercantile
nations; and with equal art and skill they would be able to sell it cheaper. They would
soon, therefore, rival those mercantile nations in this branch of foreign trade, and, in
due time, would justle them out of it altogether.

According to this liberal and generous system, therefore, the most advantageous
method in which a landed nation can raise up artificers, manufacturers, and merchants
of its own, is to grant the most perfect freedom of trade to the artificers, manufacturers,
and merchants of all other nations. It thereby raises the value of the surplus produce
of its own land, of which the continual increase gradually establishes a fund, which, in
due time, necessarily raises up all the artificers, manufacturers, and merchants, whom
it has occasion for.

When a landed nation on the contrary, oppresses, either by high duties or by
prohibitions, the trade of foreign nations, it necessarily hurts its own interest in two
different ways. First, by raising the price of all foreign goods, and of all sorts of
manufactures, it necessarily sinks the real value of the surplus produce of its own land,
with which, or, what comes to the same thing, with the price of which, it purchases
those foreign goods and manufactures. Secondly, by giving a sort of monopoly of the
home market to its own merchants, artificers, and manufacturers, it raises the rate of
mercantile and manufacturing profit, in proportion to that of agricultural profit; and,
consequently, either draws from agriculture a part of the capital which had before
been employed in it, or hinders from going to it a part of what would otherwise have
gone to it. This policy, therefore, discourages agriculture in two different ways; first,
by sinking the real value of its produce, and thereby lowering the rate of its profits;
and, secondly, by raising the rate of profit in all other employments. Agriculture is
rendered less advantageous, and trade and manufactures more advantageous, than they
otherwise would be; and every man is tempted by his own interest to turn, as much as
he can, both his capital and his industry from the former to the latter employments.

Though, by this oppressive policy, a landed nation should be able to raise up
artificers, manufacturers, and merchants of its own, somewhat sooner than it could

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do by the freedom of trade; a matter, however, which is not a little doubtful; yet it
would raise them up, if one may say so, prematurely, and before it was perfectly ripe for
them. By raising up too hastily one species of industry, it would depress another more
valuable species of industry. By raising up too hastily a species of industry which duly
replaces the stock which employs it, together with the ordinary profit, it would depress
a species of industry which, over and above replacing that stock, with its profit, affords
likewise a neat produce, a free rent to the landlord. It would depress productive labour,
by encouraging too hastily that labour which is altogether barren and unproductive.

In what manner, according to this system, the sum total of the annual produce
of the land is distributed among the three classes above mentioned, and in what
manner the labour of the unproductive class does no more than replace the value of
its own consumption, without increasing in any respect the value of that sum total, is
represented by Mr Quesnai, the very ingenious and profound author of this system,
in some arithmetical formularies. The first of these formularies, which, by way of
eminence, he peculiarly distinguishes by the name of the Economical Table, represents
the manner in which he supposes this distribution takes place, in a state of the most
perfect liberty, and, therefore, of the highest prosperity; in a state where the annual
produce is such as to afford the greatest possible neat produce, and where each class
enjoys its proper share of the whole annual produce. Some subsequent formularies
represent the manner in which he supposes this distribution is made in different states
of restraint and regulation; in which, either the class of proprietors, or the barren and
unproductive class, is more favoured than the class of cultivators; and in which either
the one or the other encroaches, more or less, upon the share which ought properly
to belong to this productive class. Every such encroachment, every violation of that
natural distribution, which the most perfect liberty would establish, must, according to
this system, necessarily degrade, more or less, from one year to another, the value and
sum total of the annual produce, and must necessarily occasion a gradual declension
in the real wealth and revenue of the society; a declension, of which the progress must
be quicker or slower, according to the degree of this encroachment, according as that
natural distribution, which the most perfect liberty would establish, is more or less
violated. Those subsequent formularies represent the different degrees of declension
which, according to this system, correspond to the different degrees in which this
natural distribution of things is violated.

Some speculative physicians seem to have imagined that the health of the human
body could be preserved only by a certain precise regimen of diet and exercise, of
which every, the smallest violation, necessarily occasioned some degree of disease or
disorder proportionate to the degree of the violation. Experience, however, would
seem to shew, that the human body frequently preserves, to all appearance at least,
the most perfect state of health under a vast variety of different regimens, even under
some which are generally believed to be very far from being perfectly wholesome. But
the healthful state of the human body, it would seem, contains in itself some unknown
principle of preservation, capable either of preventing or of correcting, in many

485

2 THE WEALTH OF NATIONS ogee

respects, the bad effects even of a very faulty regimen. Mr Quesnai, who was himself
a physician, and a very speculative physician, seems to have entertained a notion of the
same kind concerning the political body, and to have imagined that it would thrive and
prosper only under a certain precise regimen, the exact regimen of perfect liberty and
perfect justice. He seems not to have considered, that in the political body, the natural
effort which every man is continually making to better his own condition, is a principle
of preservation capable of preventing and correcting, in many respects, the bad effects
of a political economy, in some degree both partial and oppressive. Such a political
economy, though it no doubt retards more or less, is not always capable of stopping
altogether, the natural progress of a nation towards wealth and prosperity, and still less
of making it go backwards. If a nation could not prosper without the enjoyment of
perfect liberty and perfect justice, there is not in the world a nation which could ever
have prospered. In the political body, however, the wisdom of nature has fortunately
made ample provision for remedying many of the bad effects of the folly and injustice
of man; it the same manner as it has done in the natural body, for remedying those of
his sloth and intemperance.

The capital error of this system, however, seems to lie in its representing the class
of artificers, manufacturers, and merchants, as altogether barren and unproductive. The
following observations may serve to shew the impropriety of this representation:—

First, this class, it is acknowledged, reproduces annually the value of its own
annual consmnption, and continues, at least, the existence of the stock or capital which
maintains and employs it. But, upon this account alone, the denomination of barren
or unproductive should seem to be very improperly applied to it. We should not call
a marriage barren or unproductive, though it produced only a son and a daughter, to
replace the father and mother, and though it did not increase the number of the human
species, but only continued it as it was before. Farmers and country labourers, indeed,
over and above the stock which maintains and employs them, reproduce annually a
neat produce, a free rent to the landlord. As a marriage which affords three children is
certainly more productive than one which affords only two, so the labour of farmers
and country labourers is certainly more productive than that of merchants, artificers,
and manufacturers. The superior produce of the one class, however, does not, render
the other barren or unproductive.

Secondly, it seems, on this account, altogether improper to consider artificers,
manufacturers, and merchants, in the same light as menial servants. The labour of
menial servants does not continue the existence of the fund which maintains and
employs them. Their maintenance and employment is altogether at the expense
of their masters, and the work which they perform is not of a nature to repay that
expense. That work consists in services which perish generally in the very instant of
their pertormance, and does not fix or realize itself in any vendible commodity, which
can replace the value of their wages and maintenance. The labour, on the contrary, of
artificers, manufacturers, and merchants, naturally does fix and realize itself in some
such vendible commodity. It is upon this account that, in the chapter in which I treat

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of productive and unproductive labour, I have classed artificers, manufacturers, and
merchants among the productive labourers, and menial servants among the barren or
unproductive.

Thirdly, it seems, upon every supposition, improper to say, that the labour of
artificers, manufacturers, and merchants, does not increase the real revenue of the
society. Though we should suppose, for example, as it seems to be supposed in this
system, that the value of the daily, monthly, and yearly consumption of this class was
exactly equal to that of its daily, monthly, and yearly production; yet it would not from
thence follow, that its labour added nothing to the real revenue, to the real value of the
annual produce of the land and labour of the society. An artificer, for example, who,
in the first stx months after harvest, executes ten pounds worth of work, though he
should, in the same time, consume ten pounds worth of corn and other necessaries,
yet really adds the value of ten pounds to the annual produce of the land and labour of
the society. While he has been consuming a half-yearly revenue of ten pounds worth
of corn and other necessaries, he has produced an equal value of work, capable of
purchasing, either to himself, or to some other person, an equal half-yearly revenue. The
value, therefore, of what has been consumed and produced during these six months,
is equal, not to ten, but to twenty pounds. It is possible, indeed, that no more than ten
pounds worth of this value may ever have existed at any one moment of time. But
if the ten pounds worth of corn and other necessaries which were consumed by the
artificer, had been consumed by a soldier, or by a menial servant, the value of that part
of the annual produce which existed at the end of the six months, would have been ten
pounds less than it actually is in consequence of the labour of the artificer. Though the
value of what the artificer produces, therefore, should not, at any one moment of time,
be supposed greater than the value he consumes, yet, at every moment of time, the
actually existing value of goods in the market is, in consequence of what he produces,
greater than it otherwise would be.

When the patrons of this system assert, that the consumption of artificers,
manufacturer’s, and merchants, is equal to the value of what they produce, they probably
mean no more than that their revenue, or the fund destined for their consumption, is
equal to it. Butif they had expressed themselves more accurately, and only asserted, that
the revenue of this class was equal to the value of what they produced, it might readily
have occurred to the reader, that what would naturally be saved out of this revenue,
must necessarily increase more or less the real wealth of the society. In order, therefore,
to make out something like an argument, it was necessary that they should express
themselves as they have done; and this argument, even supposing things actually were
as it seems to presume them to be, turns out to be a very inconclusive one.

Fourthly, farmers and country labourers can no more augment, without parsimony,
the real revenue, the annual produce of the land and labour of their society, than
attificers, manufacturers, and merchants. The annual produce of the land and labour of
any society can be augmented only in two ways; either, first, by some improvement in
the productive powers of the useful labour actually maintained within it; or, secondly,

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by some increase in the quantity of that labour.

The improvement in the productive powers of useful labour depends, first, upon
the improvement in the ability of the workman; and, secondly, upon that of the
machinery with which he works. But the labour of artificers and manufacturers, as
it is capable of being more subdivided, and the labour of each workman reduced to
a greater simplicity of operation, than that of farmers and country labourers; so it is
likewise capable of both these sorts of improvement in a much higher degree {ses
book i chap. 1.} In this respect, therefore, the class of cultivators can have no sort of
advantage over that of artificers and manufacturers.

The increase in the quantity of useful labour actually employed within any society
must depend altogether upon the increase of the capital which employs it; and the
increase of that capital, again, must be exactly equal to the amount of the savings from
the revenue, either of the particular persons who manage and direct the employment
of that capital, or of some other persons, who lend it to them. If merchants, artificers,
and manufacturers are, as this system seems to suppose, naturally more inclined to
parsimony and saving than proprietors and cultivators, they are, so far, more likely to
augment the quantity of useful labour employed within their society, and consequently
to increase its real revenue, the annual produce of its land and labour.

Fifthly and lastly, though the revenue of the inhabitants of every country was
supposed to consist altogether, as this system seems to suppose, in the quantity of
subsistence which their industry could procure to them; yet, even upon this supposition,
the revenue of a trading and manufacturing country must, other things being equal,
always be much greater than that of one without trade or manufactures. By means of
trade and manufactures, a greater quantity of subsistence can be annually imported into
a particular country, than what its own lands, in the actual state of their cultivation, could
afford. The inhabitants of a town, though they frequently possess no lands of their
own, yet draw to themselves, by their industry, such a quantity of the rude produce of
the lands of other people, as supplies them, not only with the materials of their work,
but with the fund of their subsistence. What a town always is with regard to the country
in its neighbourhood, one independent state or country may frequently be with regard
to other independent states or countries. It is thus that Holland draws a great part of
its subsistence from other countries; live cattle from Holstein and Jutland, and corn
from almost all the different countries of Europe. A small quantity of manufactured
produce, purchases a great quantity of rude produce. A trading and manufacturing
country, therefore, naturally purchases, with a small part of its manufactured produce,
a great part of the rude produce of other countries; while, on the contrary, a country
without trade and manufactures is generally obliged to purchase, at the expense of a
great part of its rude produce, a very small part of the manufactured produce of other
countries. The one exports what can subsist and accommodate but a very few, and
imports the subsistence and accommodation of a great number. The other exports
the accommodation and subsistence of a great number, and imports that of a very
few only. The inhabitants of the one must always enjoy a much greater quantity of

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ADAM SMITH

subsistence than what their own lands, in the actual state of their cultivation, could
afford. The inhabitants of the other must always enjoy a much smaller quantity.

This system, however, with all its imperfections, is perhaps the nearest approximation
to the truth that has yet been published upon the subject of political economy; and is
upon that account, well worth the consideration of every man who wishes to examine
with attention the principles of that very important science. Though in representing the
labour which is employed upon land as the only productive labour, the notions which
it inculcates are, perhaps, too narrow and confined; yet in representing the wealth of
nations as consisting, not in the unconsumable riches of money, but in the consumable
goods annually reproduced by the labour of the society, and in representing perfect
liberty as the only effectual expedient for rendering this annual reproduction the
greatest possible, its doctrine seems to be in every respect as just as it is generous
and liberal. Its followers are very numerous; and as men are fond of paradoxes, and
of appearing to understand what surpasses the comprehensions of ordinary people,
the paradox which it maintains, concerning the unproductive nature of manufacturing
labour, has not, perhaps, contributed a little to increase the number of its admirers.
They have for some years past made a pretty considerable sect, distinguished in the
French republic of letters by the name of the Economists. Theit works have certainly
been of some service to their country; not only by bringing into general discussion,
many subjects which had never been well examined before, but by influencing, in some
measure, the public administration in favour of agriculture. It has been in consequence
of their representations, accordingly, that the agriculture of France has been delivered
from several of the oppressions which it before laboured under. The term, during
which such a lease can be granted, as will be valid against every future purchaser or
proprietor of the land, has been prolonged from nine to twenty-seven years. The
ancient provincial restraints upon the transportation of corn from one province of
the kingdom to another, have been entirely taken away; and the liberty of exporting
it to all foreign countries, has been established as the common law of the kingdom in
all ordinary cases. This sect, in their works, which are very numerous, and which treat
not only of what is properly called Political Economy, or of the nature and causes or
the wealth of nations, but of every other branch of the system of civil government, all
follow implicitly, and without any sensible variation, the doctrine of Mr. Qttesnai. There
is, upon this account, little variety in the greater part of their works. The most distinct
and best connected account of this doctrine is to be found in a little book written
by Mr. Mercier de la Riviere, some time intendant of Martinico, entitled, The natural
and essential Order of Political Societies. The admiration of this whole sect for their
master, who was himself a man of the greatest modesty and simplicity, is not inferior
to that of any of the ancient philosophers for the founders of their respective systems.
‘There have been since the world began, says a very diligent and respectable author,
the Marquis de Mirabeau, ‘three great inventions which have principally given stability
to political societies, independent of many other inventions which have enriched and
adorned them. The first is the invention of writing, which alone gives human nature

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THE WEALTH OF NATIONS

the power of transmitting, without alteration, its laws, its contracts, its annals, and
its discoveries. The second is the invention of money, which binds together all the
relations between civilized societies. The third is the economical table, the result of the
other two, which completes them both by perfecting their object; the great discovery
of our age, but of which our posterity will reap the benefit’

As the political economy of the nations of modern Europe has been more favourable
to manufactures and foreign trade, the industry of the towns, than to agriculture, the
industry of the country; so that of other nations has followed a different plan, and has
been more favourable to agriculture than to manufactures and foreign trade.

The policy of China favours agriculture more than all other employments. In China,
the condition of a labourer is said to be as much superior to that of an artificer, as in
most parts of Europe that of an artificer is to that of a labourer. In China, the great
ambition of every man is to get possession of a little bit of land, either in property
or in lease; and leases are there said to be granted upon very moderate terms, and to
be sufficiently secured to the lessees. The Chinese have little respect for foreign trade.
Your beggarly commerce! was the language in which the mandarins of Pekin used to
talk to Mr. De Lange, the Russian envoy, concerning it {See the Journal of Mr. De
Lange, in Bell’s Travels, vol. ii. p. 258, 276, 293.}. Except with Japan, the Chinese carry
on, themselves, and in their own bottoms, little or no foreign trade; and it is only into
one or two ports of their kingdom that they even admit the ships of foreign nations.
Foreign trade, therefore, is, in China, every way confined within a much narrower circle
than that to which it would naturally extend itself, if more freedom was allowed to it,
either in their own ships, or in those of foreign nations.

Manufactures, as in a small bulk they frequently contain a great value, and can
upon that account be transported at less expense from one country to another than
most parts of rude produce, are, in almost all countries, the principal support of
foreign trade. In countries, besides, less extensive, and less favourably circumstanced
for inferior commerce than China, they generally require the support of foreign trade.
Without an extensive foreign market, they could not well flourish, either in countries
so moderately extensive as to afford but a narrow home market, or in countries where
the communication between one province and another was so difficult, as to render
it impossible for the goods of any particular place to enjoy the whole of that home
market which the country could afford. The perfection of manufacturing industry, it
must be remembered, depends altogether upon the division of labour; and the degree
to which the division of labour can be introduced into any manufacture, is necessarily
regulated, it has already been shewn, by the extent of the market. But the great extent
of the empire of China, the vast multitude of its inhabitants, the variety of climate, and
consequently of productions in its different provinces, and the easy communication by
means of water-carriage between the greater part of them, render the home market
of that country of so great extent, as to be alone sufficient to support very great
manufactures, and to admit of very considerable subdivisions of labour. The home
market of China is, perhaps, in extent, not much inferior to the market of all the

490

ADAM SMITH

different countries of Europe put together. A more extensive foreign trade, however,
which to this great home market added the foreign market of all the rest of the world,
especially if any considerable part of this trade was carried on in Chinese ships, could
scarce fail to increase very much the manufactures of China, and to improve very much
the productive powers of its manufacturing industry. By a more extensive navigation,
the Chinese would naturally learn the art of using and constructing, themselves, all the
different machines made use of in other countries, as well as the other improvements
of art and industry which are practised in all the different parts of the world. Upon
their present plan, they have little opportunity of improving themselves by the example
of any other nation, except that of the Japanese.

The policy of ancient Egypt, too, and that of the Gentoo government of Indostan,
seem to have favoured agriculture more than all other employments.

Both in ancient Egypt and Indostan, the whole body of the people was divided into
different casts or tribes each of which was confined, from father to son, to a particular
employment, or class of employments. The son of a priest was necessarily a priest;
the son of a soldier, a soldier; the son of a labourer, a labourer; the son of a weaver, a
weaver; the son of a tailor, a tailor, etc. In both countries, the cast of the priests holds
the highest rank, and that of the soldiers the next; and in both countries the cast of
the farmers and labourers was superior to the casts of merchants and manufacturers.

The government of both countries was particularly attentive to the interest of
agriculture. The works constructed by the ancient sovereigns of Egypt, for the proper
distribution of the waters of the Nile, were famous in antiquity, and the ruined remains
of some of them are still the admiration of travellers. Those of the same kind which
were constructed by the ancient sovereigns of Indostan, for the proper distribution of
the waters of the Ganges, as well as of many other rivers, though they have been less
celebrated, seem to have been equally great. Both countries, accordingly, though subject
occasionally to dearths, have been famous for their great fertility. Though both were
extremely populous, yet, in years of moderate plenty, they were both able to export
great quantities of grain to their neighbours.

The ancient Egyptians had a superstitious aversion to the sea; and as the Gentoo
religion does not permit its followers to light a fire, nor consequently to dress any
victuals, upon the water, it, in effect, prohibits them from all distant sea voyages. Both
the Egyptians and Indians must have depended almost altogether upon the navigation
of other nations for the exportation of their surplus produce; and this dependency, as it
must have confined the market, so it must have discouraged the increase of this surplus
produce. It must have discouraged, too, the increase of the manufactured produce, more
than that of the rude produce. Manufactures require a much more extensive market
than the most important parts of the rude produce of the land. A single shoemaker will
make more than 300 pairs of shoes in the year; and his own family will not, perhaps,
weat out six pairs. Unless, therefore, he has the custom of, at least, 50 such families
as his own, he cannot dispose of the whole product of his own labour. The most
numerous class of artificers will seldom, in a large country, make more than one in

491

THE WEALTH OF NATIONS (oo

50, or one in a 100, of the whole number of families contained in it. But in such large
countries, as France and England, the number of people employed in agriculture has,
by some authors been computed at a half, by others at a third and by no author that I
know of, at less that a fifth of the whole inhabitants of the country. But as the produce
of the agriculture of both France and England is, the far greater part of it, consumed at
home, each person employed in it must, according to these computations, require little
more than the custom of one, two, or, at most, of four such families as his own, in order
to dispose of the whole produce of his own labour. Agriculture, therefore, can support
itself under the discouragement of a confined market much better than manufactures.
In both ancient Egypt and Indostan, indeed, the confinement of the foreign market
was in some measure compensated by the conveniency of many inland navigations,
which opened, in the most advantageous manner, the whole extent of the home market
to every part of the produce of every different district of those countries. The great
extent of Indostan, too, rendered the home market of that country very great, and
sufficient to support a great variety of manufactures. But the small extent of ancient
Egypt, which was never equal to England, must at all times, have rendered the home
market of that country too narrow for supporting any great variety of manufactures.
Bengal accordingly, the province of Indostan which commonly exports the greatest
quantity of rice, has always been more remarkable for the exportation of a great variety
of manufactures, than for that of its grain. Ancient Egypt, on the contrary, though it
exported some manufactures, fine linen in particular, as well as some other goods, was
always most distinguished for its great exportation of grain. It was long the granary of
the Roman empire.

The sovereigns of China, of ancient Egypt, and of the different kingdoms into
which Indostan has, at different times, been divided, have always derived the whole,
or by far the most considerable part, of their revenue, from some sort of land tax or
land rent. This land tax, or land rent, like the tithe in Europe, consisted in a certain
proportion, a fifth, it is said, of the produce of the land, which was either delivered in
kind, or paid in money, according to a certain valuation, and which, therefore, varied
from year to year, according to all the variations of the produce. It was natural, therefore,
that the sovereigns of those countries should be particularly attentive to the interests
of agriculture, upon the prosperity or declension of which immediately depended the
yearly increase or diminution of their own revenue.

The policy of the ancient republics of Greece, and that of Rome, though it
honoured agriculture more than manufactures or foreign trade, yet seems rather to
have discouraged the latter employments, than to have given any direct or intentional
encouragement to the former. In several of the ancient states of Greece, foreign trade
was prohibited altogether; and in several others, the employments of artificers and
manufacturers were considered as hurtful to the strength and agility of the human
body, as rendering it incapable of those habits which their military and gymnastic
exercises endeavoured to form in it, and as thereby disqualifying it, more or less, for
undergoing the fatigues and encountering the dangers of war. Such occupations were

492

ADAM SMITH

considered as fit only for slaves, and the free citizens of the states were prohibited from
exercising them. Even in those states where no such prohibition took place, as in Rome
and Athens, the great body of the people were in effect excluded from all the trades
which are now commonly exercised by the lower sort of the inhabitants of towns. Such
trades were, at Athens and Rome, all occupied by the slaves of the rich, who exercised
them for the benefit of their masters, whose wealth, power, and protection, made it
almost impossible for a poor freeman to find a market for his work, when it came
into competition with that of the slaves of the rich. Slaves, however, are very seldom
inventive; and all the most important improvements, either in machinery, or in the
arrangement and distribution of work, which facilitate and abridge labour have been
the discoveries of freemen. Should a slave propose any improvement of this kind, his
master would be very apt to consider the proposal as the suggestion of laziness, and
of a desire to save his own labour at the master’s expense. The poor slave, instead of
reward would probably meet with much abuse, perhaps with some punishment. In the
manufactures carried on by slaves, therefore, more labour must generally have been
employed to execute the same quantity of work, than in those carried on by freemen.
The work of the farmer must, upon that account, generally have been dearer than that
of the latter. The Hungarian mines, it is remarked by Mr. Montesquieu, though not
richer, have always been wrought with less expense, and therefore with more profit,
than the Turkish mines in their neighbourhood. The Turkish mines are wrought by
slaves; and the arms of those slaves are the only machines which the Turks have ever
thought of employing. The Hungarian mines ate wrought by freemen, who employ a
great deal of machinery, by which they facilitate and abridge their own labour. From the
very little that is known about the price of manufactures in the times of the Greeks and
Romans, it would appear that those of the finer sort were excessively dear. Silk sold for
its weight in gold. It was not, indeed, in those times an European manufacture; and as it
was all brought from the East Indies, the distance of the carriage may in some measure
account for the greatness of the price. The price, however, which a lady, it is said, would
sometimes pay for a piece of very fine linen, seems to have been equally extravagant;
and as linen was always either an European, or at farthest, an Egyptian manufacture,
this high price can be accounted for only by the great expense of the labour which
must have been employed about It, and the expense of this labour again could arise
from nothing but the awkwardness of the machinery which is made use of. The price
of fine woollens, too, though not quite so extravagant, seems, however, to have been
much above that of the present times. Some cloths, we ate told by Pliny {Plin. 1.
ix.c.39.', dyed in a particular manner, cost a hundred denarii, or £3:6s:8d. the pound
weight. Others, dyed in another manner, cost a thousand denarii the pound weight, or
£33:6s:8d. The Roman pound, it must be remembered, contained only twelve of our
avoirdupois ounces. This high price, indeed, seems to have been principally owing to
the dye. But had not the cloths themselves been much dearer than any which are made
in the present times, so very expensive a dye would not probably have been bestowed
upon them. The disproportion would have been too great between the value of the

493

accessory and that of the principal. The price mentioned by the same author {Plin.
1. viii.c.48.}, of some triclinaria, a sort of woollen pillows or cushions made use of
to lean upon as they reclined upon theit couches at table, passes all credibility; some
of them being said to have cost more than £30,000, others more than £300,000. This
high price, too, is not said to have arisen from the dye. In the dress of the people of
fashion of both sexes, there seems to have been much less variety, it is observed by Dr.
Arbuthnot, in ancient than in modern times; and the very little variety which we find
in that of the ancient statues, confirms his observation. He infers from this, that their
dress must, upon the whole, have been cheaper than ours; but the conclusion does not
seem to follow. When the expense of fashionable dress is very great, the variety must be
very small. But when, by the improvements in the productive powers of manufacturing
art and industry, the expense of any one dress comes to be very moderate, the variety
will naturally be very great. The rich, not being able to distinguish themselves by the
expense of any one dress, will naturally endeavour to do so by the multitude and variety
of their dresses.

The greatest and most important branch of the commerce of every nation, it has
already been observed, is that which is carried on between the inhabitants of the town
and those of the country. The inhabitants of the town draw from the country the
tude produce, which constitutes both the materials of their work and the fund of
their subsistence; and they pay for this rude produce, by sending back to the country a
certain portion of it manufactured and prepared for immediate use. The trade which is
carried on between these two different sets of people, consists ultimately in a certain
quantity of rude produce exchanged for a certain quantity of manufactured produce.
The dearer the latter, therefore, the cheaper the former; and whatever tends in any
country to raise the price of manufactured produce, tends to lower that of the rude
produce of the land, and thereby to discourage agriculture. The smaller the quantity of
manufactured produce, which any given quantity of rude produce, or, what comes to
the same thing, which the price of any given quantity of rude produce, is capable of
purchasing, the smaller the exchangeable value of that given quantity of rude produce;
the smaller the encouragement which either the landlord has to increase its quantity by
improving, or the farmer by cultivating the land. Whatever, besides, tends to diminish
in any country the number of artificers and manufacturers, tends to diminish the home
market, the most important of all markets, for the rude produce of the land, and
thereby still further to discourage agriculture.

Those systems, therefore, which preferring agriculture to all other employments,
in order to promote it, impose restraints upon manufactures and foreign trade, act
contrary to the very end which they propose, and indirectly discourage that very species
of industry which they mean to promote. They are so far, perhaps, more inconsistent
than even the mercantile system. That system, by encouraging manufactures and foreign
trade more than agriculture, turns a certain portion of the capital of the society, from
supporting a more advantageous, to support a less advantageous species of industry.
But still it really, and in the end, encourages that species of industry which it means to

494

ADAM SMITH

promote. Those agricultural systems, on the contrary, really, and in the end, discourage
their own favourite species of industry.

It is thus that every system which endeavours, either, by extraordinary
encouragements to draw towards a particular species of industry a greater share of the
capital of the society than what would naturally go to it, or, by extraordinary restraints,
to force from a particular species of industry some share of the capital which would
otherwise be employed in it, is, in reality, subversive of the great purpose which it means
to promote. It retards, instead of accelerating the progress of the society towards real
wealth and greatness; and diminishes, instead of increasing, the real value of the annual
produce of its land and labour.

All systems, either of preference or of restraint, therefore, being thus completely
taken away, the obvious and simple system of natural liberty establishes itself of its own
accord. Every man, as long as he does not violate the laws of justice, is left perfectly
free to pursue his own interest his own way, and to bring both his industry and capital
into competition with those of any other man, or order of men. The sovereign is
completely discharged from a duty, in the attempting to perform which he must always
be exposed to innumerable delusions, and for the proper performance of which, no
human wisdom or knowledge could ever be sufficient; the duty of superintending the
industry of private people, and of directing it towards the employments most suitable
to the interests of the society. According to the system of natural liberty, the sovereign
has only three duties to attend to; three duties of great importance, indeed, but plain and
intelligible to common understandings: first, the duty of protecting the society from the
violence and invasion of other independent societies; secondly, the duty of protecting,
as far as possible, every member of the society from the injustice or oppression of
evety other member of it, or the duty of establishing an exact administration of justice;
and, thirdly, the duty of erecting and maintaining certain public works, and certain
public institutions, which it can never be for the interest of any individual, or small
number of individuals to erect and maintain; because the profit could never repay the
expense to any individual, or small number of individuals, though it may frequently do
much more than repay it to a great society.

The proper performance of those several duties of the sovereign necessarily
supposes a certain expense; and this expense again necessarily requires a certain revenue
to support it. In the following book, therefore, I shall endeavour to explain, first, what
are the necessary expenses of the sovereign or commonwealth; and which of those
expenses ought to be defrayed by the general contribution of the whole society; and
which of them, by that of some particular part only, or of some particular members of
the society: secondly, what are the different methods in which the whole society may
be made to contribute towards defraying the expenses incumbent on the whole society;
and what are the principal advantages and inconveniencies of each of those methods:
and thirdly, what are the reasons and causes which have induced almost all modern
governments to mortgage some part of this revenue, or to contract debts; and what
have been the effects of those debts upon the real wealth, the annual produce of the

495

THE WEALTH OF NATIONS

land and labour of the society. The following book, therefore, will naturally be divided
into three chapters.

496

ADAM SMITH

APPENDIX TO BOOK IV

he two following accounts are subjoined, in order to illustrate and confirm what

is said in the fifth chapter of the fourth book, concerning the Tonnage Bounty to
the Whit-herring Fishery. The reader, I believe, may depend upon the accuracy of both
accounts.

An account of Busses fitted out in Scotland for eleven Years, with the Number
of empty Barrels carried out, and the Number of Barrels of Herrings caught; also
the Bounty, at a Medium, on each Barrel of Sea-sticks, and on each Barrel when fully
packed.

Years Number of Empty Barrels Barrels of Her- Bounty paid on
Busses carried out rings caught the Busses
Le sande
GE 29 5,948 2832 pomersie Oh AG)
D2 168 41,316 22 207 1120555 97
TS 190 42,333 42.055 1Z5 100 8
1774 240 595303 56,365 269320)
ide 215 69,144 52,879 19315e15
1776 294 76,329 51,863 PAOAS UT
Wie 240 62,679 43,313 ieo28 2
1778 220 56,390 40,958 NOG
a9. 206 55,194 29,367 15237) <0
1780 181 48,315 19,885 13,445 12
1781 15 Ba,992 G93 GlSe ls
Totals 2,186 550,943 378,347 £165,463 14 0

Sea-sticks 378,347 Bounty, at a medium, for each

barrel of sea-sticks, LS OMES SEZ

But a barrel of sea-sticks

NnoOanaAa Seog

being only reckoned two thirds
of a barrel fully packed, one
third to be deducted, which
'/3deducted 126,115 brings the bounty to £0 124
Barrels fully
packed 252A
And if the herrings are exported, there is besides a
premiumof £0 2 8
So the bounty paid by government in money for each

barrelis £0 14 11%
497

THE WEALTH OF NATIONS |

But if to this, the duty of the salt usually taken

credit for as expended in curing each barrel, which

at a medium, is, of foreign, one bushel and one-

fourth of a bushel, at 10s. a-bushel, be added, viz 0 12 6

the bounty on each barrel would amount to Lint oA

If the herrings are cured with British salt, it will

stand thus, viz.

Bounty as before £0 14 11%

But if to this bounty, the duty on two bushels of

Scotch salt, at 1s.6d. per bushel, supposed to be

the quantity, at a medium, used in curing each

barrel is added, viz. Carsn0

The bounty on each barrel will amount to LEO» TEs

And when buss herrings are entered for home

consumption in Scotland, and pay the shilling a

barrel of duty, the bounty stands thus, to wit,

aq betore, 90012574

From which the shilling a barrel is to be deducted 0 1 O
LO MEL goes

But to that there is to be added again, the duty of

the foreign salt used curing a barrel of herring viz 0 12 6

So that the premium allowed for each barrel of her-

rings entered for home consumption is Lo O74

If the herrings are cured in British salt, it will

stand as follows viz.

Bounty on each barrel brought in by the busses, as

above LOR a

From which deduct 1s. a-barrel, paid at the time

they are entered for home consumption OF })
LOMA 374

But if to the bounty, the the duty on two bushel

of Scotch salt, at 1s.6d. per bushel supposed to

be the quantity, at a medium, used in curing each

barrel, is added, viz A sreO
the premium for each barrel entered for home
consumption will be fe ome 32%

Though the loss of duties upon herrings exported cannot, perhaps, properly be
considered as bounty, that upon herrings entered for home consumption certainly may.
An account of the Quantity of Foreign Salt imported into Scotland, and of Scotch
Salt delivered Duty-free from the Works there, for the Fishery, from the 5th. of April
1771 to the 5th. of April 1782 with the Medium of both for one Year.
Foreign Salt — Scotch Salt delivered

498

ADAM SMITH

PERIOD imported from the Works
Bushels Bushels
From 5th. April 1771 to
5th. April 1782 936,974 168,226
Medium for one year 85,1591% 159293

It is to be observed, that the bushel of foreign salt weighs 48lbs., that of British
weighs 56lbs. only.

499

THE WEALTH OF NATIONS

BOOK V.

OF THE REVENUE OF THE
SOVEREIGN OR COMMONWEALTH

CHAPTER I.

OF THE EXPENSES OF
THE SOVEREIGN OR
COMMONWEALTH.

PART I.

Of the Expense of Defence.

he first duty of the sovereign, that of protecting the society from the violence and

invasion of other independent societies, can be performed only by means of a
military force. But the expense both of preparing this military force in time of peace,
and of employing it in time of war, is very different in the different states of society, in
the different periods of improvement.

Among nations of hunters, the lowest and rudest state of society, such as we find it
among the native tribes of North America, every man is a warrior, as well as a hunter.
When he goes to war, either to defend his society, or to revenge the injuries which
have been done to it by other societies, he maintains himself by his own labour, in the
same manner as when he lives at home. His society (for in this state of things there
is properly neither sovereign nor commonwealth) is at no sort of expense, either to
prepare him for the field, or to maintain him while he is in it.

Among nations of shepherds, a more advanced state of society, such as we find it
among the Tartars and Arabs, every man is, in the same manner, a warrior. Such nations
have commonly no fixed habitation, but live either in tents, or in a sort of covered
waggons, which are easily transported from place to place. The whole tribe, or nation,

500

aoe
Ss

ADAM SMITH

changes its situation according to the different seasons of the year, as well as according
to other accidents. When its herds and flocks have consumed the forage of one part of
the country, it removes to another, and from that to a third. In the dry season, it comes
down to the banks of the rivers; in the wet season, it retires to the upper country. When
such a nation goes to war, the warriors will not trust their herds and flocks to the feeble
defence of their old men, their women and children; and their old men, their women
and children, will not be left behind without defence, and without subsistence. The
whole nation, besides, being accustomed to a wandering life, even in time of peace,
easily takes the field in time of war. Whether it marches as an army, or moves about as
a company of herdsmen, the way of life is nearly the same, though the object proposed
by it be very different. They all go to war together, therefore, and everyone does as well
as he can. Among the Tartars, even the women have been frequently known to engage
in battle. If they conquer, whatever belongs to the hostile tribe is the recompence of
the victory; but if they are vanquished, all is lost; and not only their herds and flocks,
but their women and children become the booty of the conqueror. Even the greater
part of those who survive the action are obliged to submit to him for the sake of
immediate subsistence. The rest are commonly dissipated and dispersed in the desert.
The ordinary life, the ordinary exercise of a Tartar or Arab, prepares him sufficiently
for war. Running, wrestling, cudgel-playing, throwing the javelin, drawing the bow, etc.
are the common pastimes of those who live in the open air, and are all of them the
images of war. When a Tartar or Arab actually goes to wart, he is maintained by his own
herds and flocks, which he carries with him, in the same manner as in peace. His chief
or sovereign (for those nations have all chiefs or sovereigns) 1s at no sort of expense in
preparing him for the field; and when he is in it, the chance of plunder is the only pay
which he either expects or requires.
An army of hunters can seldom exceed two or three hundred men. The precarious
subsistence which the chace affords, could seldom allow a greater number to keep
together for any considerable time. An army of shepherds, on the contrary, may
sometimes amount to two or three hundred thousand. As long as nothing stops their
progress, as long as they can go on from one district, of which they have consumed the
forage, to another, which is yet entire; there seems to be scarce any limit to the number
who can march on together. A nation of huntets can never be formidable to the
civilized nations in their neighbourhood; a nation of shepherds may. Nothing can be
more contemptible than an Indian war in North America; nothing, on the contrary, can
be more dreadful than a Tartar invasion has frequently been in Asia. The judgment of
Thucydides, that both Europe and Asia could not resist the Scythians united, has been
verified by the experience of all ages. The inhabitants of the extensive, but defenceless
plains of Scythia or Tartary, have been frequently united under the dominion of the
chief of some conquering horde or clan; and the havock and devastation of Asia have
always signalized their union. The inhabitants of the inhospitable deserts of Arabia,
the other great nation of shepherds, have never been united but once, under Mahomet
and his immediate successors. Their union, which was more the effect of religious

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THE WEALTH OF NATIONS ~

enthusiasm than of conquest, was signalized in the same manner. If the hunting nations
of America should ever become shepherds, their neighbourhood would be much more
dangerous to the European colonies than it is at present.

In a yet more advanced state of society, among those nations of husbandmen
who have little foreign commerce, and no other manufactures but those coarse and
household ones, which almost every private family prepares for its own use, every man,
in the same manner, either is a warrior, ot easily becomes such. Those who live by
agriculture generally pass the whole day in the open air, exposed to all the inclemencies
of the seasons. The hardiness of their ordinary life prepares them for the fatigues of
war, to some of which their necessary occupations bear a great analogy. The necessary
occupation of a ditcher prepares him to work in the trenches, and to fortify a camp, as
well as to inclose a field. The ordinary pastimes of such husbandmen are the same as
those of shepherds, and are in the same manner the images of war. But as husbandmen
have less leisure than shepherds, they are not so frequently employed in those pastimes.
They are soldiers but soldiers not quite so much masters of their exercise. Such as they
are, however, it seldom costs the sovereign or commonwealth any expense to prepare
them for the field.

Agriculture, even in its rudest and lowest state, supposes a settlement, some sort of
fixed habitation, which cannot be abandoned without great loss. When a nation of mere
husbandmen, therefore, goes to war, the whole people cannot take the field together.
The old men, the women and children, at least, must remain at home, to take care of
the habitation. All the men of the military age, however, may take the field, and in small
nations of this kind, have frequently done so. In every nation, the men of the military
age ate supposed to amount to about a fourth or a fifth part of the whole body of
the people. If the campaign, too, should begin after seedtime, and end before harvest,
both the husbandman and his principal labourers can be spared from the farm without
much loss. He trusts that the work which must be done in the mean time, can be well
enough executed by the old men, the women, and the children. He is not unwilling,
therefore, to serve without pay during a short campaign; and it frequently costs the
sovereign or commonwealth as little to maintain him in the field as to prepare him for
it. The citizens of all the different states of ancient Greece seem to have served in this
manner till after the second Persian war; and the people of Peloponnesus till after the
Peloponnesian war. The Peloponnesians, Thucydides observes, generally left the field
in the summer, and returned home to reap the harvest. The Roman people, under
their kings, and during the first ages of the republic, served in the same manner. It was
not till the seige of Veii, that they who staid at home began to contribute something
towards maintaining those who went to war. In the European monarchies, which were
founded upon the ruins of the Roman empire, both before, and for some time after,
the establishment of what is properly called the feudal law, the great lords, with all their
immediate dependents, used to serve the crown at their own expense. In the field, in
the same manner as at home, they maintained themselves by their own revenue, and not
by any stipend or pay which they received from the king upon that particular occasion.

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ADAM SMITH

In a more advanced state of society, two different causes contribute to render
it altogether impossible that they who take the field should maintain themselves at
their own expense. Those two causes are, the progress of manufactures, and the
improvement in the art of war.

Though a husbandman should be employed in an expedition, provided it begins
after seedtime, and ends before harvest, the interruption of his business will not always
occasion any considerable diminution of his revenue. Without the intervention of his
labour, Nature does herself the greater part of the work which remains to be done. But
the moment that an artificer, a smith, a carpenter, or a weaver, for example, quits his
workhouse, the sole source of his revenue is completely dried up. Nature does nothing
for him; he does all for himself. When he takes the field, therefore, in defence of the
public, as he has no revenue to maintain himself, he must necessarily be maintained by
the public. But in a country, of which a great part of the inhabitants are artificers and
manufacturers, a great part of the people who go to war must be drawn from those
classes, and must, therefore, be maintained by the public as long as they are employed
in its service.

When the art of war, too, has gradually grown up to be a very intricate and
complicated science; when the event of war ceases to be determined, as in the first
ages of society, by a single irregular skirmish or battle; but when the contest is generally
spun out through several different campaigns, each of which lasts during the greater
part of the year; it becomes universally necessary that the public should maintain those
who serve the public in war, at least while they are employed in that service. Whatever,
in time of peace, might be the ordinary occupation of those who go to war, so very
tedious and expensive a service would otherwise be by far too heavy a burden upon
them. After the second Persian war, accordingly, the armies of Athens seem to have
been generally composed of mercenary troops, consisting, indeed, partly of citizens,
but partly, too, of foreigners; and all of them equally hired and paid at the expense
of the state. From the time of the siege of Veii, the armies of Rome recetved pay
for their service during the time which they remained in the field. Under the feudal
governments, the military service, both of the great lords, and of their immediate
dependents, was, after a certain period, universally exchanged for a payment in money,
which was employed to maintain those who served in their stead.

The number of those who can go to wat, in proportion to the whole number of
the people, is necessarily much smaller in a civilized than in a rude state of society.
In a civilized society, as the soldiers are maintained altogether by the labour of those
who are not soldiers, the number of the former can never exceed what the latter can
maintain, over and above maintaining, in a manner suitable to their respective stations,
both themselves and the other officers of government and law, whom they are obliged
to maintain. In the little agrarian states of ancient Greece, a fourth or a fifth part
of the whole body of the people considered the themselves as soldiers, and would
sometimes, it is said, take the field. Among the civilized nations of modern Europe, it
is commonly computed, that not more than the one hundredth part of the inhabitants

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THE WEALTH OF NATIONS

of any country can be employed as soldiers, without ruin to the country which pays the
expense of their service.

The expense of preparing the army for the field seems not to have become
considerable in any nation, till long after that of maintaining it in the field had devolved
entirely upon the sovereign or commonwealth. In all the different republics of ancient
Greece, to learn his military exercises, was a necessary part of education imposed by
the state upon every free citizen. In every city there seems to have been a public field,
in which, under the protection of the public magistrate, the young people were taught
their different exercises by different masters. In this very simple institution consisted
the whole expense which any Grecian state seems ever to have been at, in preparing
its citizens for war. In ancient Rome, the exercises of the Campus Martius answered
the same purpose with those of the Gymnasium in ancient Greece. Under the feudal
governments, the many public ordinances, that the citizens of every district should
practise archery, as well as several other military exercises, were intended for promoting
the same purpose, but do not seem to have promoted it so well. Either from want of
interest in the officers entrusted with the execution of those ordinances, or from some
other cause, they appear to have been universally neglected; and in the progress of all
those governments, military exercises seem to have gone gradually into disuse among
the great body of the people.

In the republics of ancient Greece and Rome, during the whole period of their
existence, and under the feudal governments, for a considerable time after their first
establishment, the trade of a soldier was not a separate, distinct trade, which constituted
the sole or principal occupation of a particular class of citizens; every subject of the
state, whatever might be the ordinary trade or occupation by which he gained his
livelihood, considered himself, upon all ordinary occasions, as fit likewise to exercise
the trade of a soldier, and, upon many extraordinary occasions, as bound to exercise it.

The art of war, however, as it is certainly the noblest of all arts, so, in the progress
of improvement, it necessarily becomes one of the most complicated among them.
The state of the mechanical, as well as some other arts, with which it is necessarily
connected, determines the degree of perfection to which it is capable of being carried
at any particular time. But in order to carry it to this degree of perfection, it is necessary
that it should become the sole or principal occupation of a particular class of citizens;
and the division of labour is as necessary for the improvement of this, as of every
other art. Into other arts, the division of labour is naturally introduced by the prudence
of individuals, who find that they promote their private interest better by confining
themselves to a particular trade, than by exercising a great number. But it is the wisdom
of the state only, which can render the trade of a soldier a particular trade, separate and
distinct from all others. A private citizen, who, in time of profound peace, and without
any particular encouragement from the public, should spend the greater part of his
time in military exercises, might, no doubt, both improve himself very much in them,
and amuse himself very well; but he certainly would not promote his own interest.
It is the wisdom of the state only, which can render it for his interest to give up the

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ADAM SMITH

greater part of his time to this peculiar occupation; and states have not always had this
wisdom, even when their circumstances had become such, that the preservation of
their existence required that they should have it.

A shepherd has a great deal of leisure; a husbandman, in the rude state of husbandry,
has some; an artificer or manufacturer has none at all. The first may, without any loss,
employ a great deal of his time in martial exercises; the second may employ some part of
it; but the last cannot employ a single hour in them without some loss, and his attention
to his own interest naturally leads him to neglect them altogether. Those improvements
in husbandry, too, which the progress of arts and manufactures necessarily introduces,
leave the husbandman as little leisure as the artificer. Military exercises come to be as
much neglected by the inhabitants of the country as by those of the town, and the
great body of the people becomes altogether unwarlike. That wealth, at the same time,
which always follows the improvements of agriculture and manufactures, and which,
in reality, is no more than the accumulated produce of those improvements, provokes
the invasion of all their neighbours. An industrious, and, upon that account, a wealthy
nation, is of all nations the most likely to be attacked; and unless the state takes some
new measure for the public defence, the natural habits of the people render them
altogether incapable of defending themselves.

In these circumstances, there seem to be but two methods by which the state can
make any tolerable provision for the public defence.

It may either, first, by means of a very rigorous police, and in spite of the whole
bent of the interest, genius, and inclinations of the people, enforce the practice of
military exercises, and oblige either all the citizens of the military age, or a certain
number of them, to join in some measure the trade of a soldier to whatever other trade
ot profession they may happen to carry on.

Or, secondly, by maintaining and employing a certain number of citizens in the
constant practice of military exercises, it may render the trade of a soldier a particular
trade, separate and distinct from all others.

If the state has recourse to the first of those two expedients, its military force
is said to consist in a militia; if to the second, it is said to consist in a standing army.
The practice of military exercises is the sole or principal occupation of the soldiers
of a standing army, and the maintenance or pay which the state affords them is the
principal and ordinary fund of their subsistence. The practice of military exercises is
only the occasional occupation of the soldiers of a militia, and they derive the principal
and ordinary fund of their subsistence from some other occupation. In a militia, the
character of the labourer, artificer, or tradesman, predominates over that of the soldier;
in a standing army, that of the soldier predominates over every other character; and in
this distinction seems to consist the essential difference between those two different
species of military force.

Militias have been of several different kinds. In some countries, the citizens destined
for defending the state seem to have been exercised only, without being, if I may say so,
regimented; that is, without being divided into separate and distinct bodies of troops,

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THE WEALTH OF NATIONS

each of which performed its exercises under its own proper and permanent officers.
In the republics of ancient Greece and Rome, each citizen, as long as he remained at
home, seems to have practised his exercises, either separately and independently, or
with such of his equals as he liked best; and not to have been attached to any particular
body of troops, till he was actually called upon to take the field. In other countries, the
militia has not only been exercised, but regimented. In England, in Switzerland, and, I
believe, in every other country of modern Europe, where any imperfect military force
of this kind has been established, every militiaman is, even in time of peace, attached
to a particular body of troops, which performs its exercises under its own proper and
permanent officers.

Before the invention of fire-arms, that army was superior in which the soldiers
had, each individually, the greatest skill and dexterity in the use of their arms. Strength
and agility of body were of the highest consequence, and commonly determined the
fate of battles. But this skill and dexterity in the use of their arms could be acquired
only, in the same manner as fencing is at present, by practising, not in great bodies, but
each man separately, in a particular school, under a particular master, or with his own
particular equals and companions. Since the invention of fire-arms, strength and agility
of body, or even extraordinary dexterity and skill in the use of arms, though they are far
from being of no consequence, are, however, of less consequence. The nature of the
weapon, though it by no means puts the awkward upon a level with the skilful, puts him
more nearly so than he ever was before. All the dexterity and skill, it is supposed, which
are necessary for using it, can be well enough acquired by practising in great bodies.

Regularity, order, and prompt obedience to command, are qualities which, in
modern armies, are of more importance towards determining the fate of battles,
than the dexterity and skill of the soldiers in the use of their arms. But the noise of
fire-arms, the smoke, and the invisible death to which every man feels himself every
moment exposed, as soon as he comes within cannon-shot, and frequently a long time
before the battle can be well said to be engaged, must render it very difficult to maintain
any considerable degree of this regularity, order, and prompt obedience, even in the
beginning of a modern battle. In an ancient battle, there was no noise but what arose
from the human voice; there was no smoke, there was no invisible cause of wounds
or death. Every man, till some mortal weapon actually did approach him, saw clearly
that no such weapon was near him. In these circumstances, and among troops who
had some confidence in their own skill and dexterity in the use of their arms, it must
have been a good deal less difficult to preserve some degree of regularity and order,
not only in the beginning, but through the whole progress of an ancient battle, and
till one of the two armies was fairly defeated. But the habits of regularity, order, and
prompt obedience to command, can be acquired only by troops which are exercised in
ereat bodies.

A militia, however, in whatever manner it may be either disciplined or exercised,
must always be much inferior to a well disciplined and well exercised standing army.

The soldiers who are exercised only once a week, or once a-month, can never be

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ADAM SMITH

so expert in the use of their arms, as those who are exercised every day, or every other
day; and though this circumstance may not be of so much consequence in modern, as
it was in ancient times, yet the acknowledged superiority of the Prussian troops, owing,
it is said, very much to their superior expertness in their exercise, may satisfy us that it
is, even at this day, of very considerable consequence.

The soldiers, who ate bound to obey their officer only once a-week, or once
a-month, and who are at all other times at liberty to manage their own affairs their
own way, without being, in any respect, accountable to him, can never be under the
same awe in his presence, can never have the same disposition to ready obedience, with
those whose whole life and conduct are every day directed by him, and who every day
even rise and go to bed, or at least retire to their quarters, according to his orders. In
what is called discipline, or in the habit of ready obedience, a militia must always be still
more inferior to a standing army, than it may sometimes be in what is called the manual
exercise, or in the management and use of its arms. But, in modern war, the habit
of ready and instant obedience is of much greater consequence than a considerable
superiority in the management of arms.

Those militias which, like the Tartar or Arab militia, go to war under the same
chieftains whom they are accustomed to obey in peace, are by far the best. In respect
for their officers, in the habit of ready obedience, they approach nearest to standing
armies. The Highland militia, when it served under its own chieftains, had some
advantage of the same kind. As the Highlanders, however, were not wandering, but
stationary shepherds, as they had all a fixed habitation, and were not, in peaceable
times, accustomed to follow their chieftain from place to place; so, in time of war, they
were less willing to follow him to any considerable distance, or to continue for any
long time in the field. When they had acquired any booty, they were eager to return
home, and his authority was seldom sufficient to detain them. In point of obedience,
they were always much inferior to what is reported of the Tartars and Arabs. As the
Highlanders, too, from their stationary life, spend less of their time in the open air, they
were always less accustomed to military exercises, and were less expert in the use of
their arms than the Tartars and Arabs are said to be.

A militia of any kind, it must be observed, however, which has served for several
successive campaigns in the field, becomes in every respect a standing army. The
soldiers are every day exercised in the use of their arms, and, being constantly under
the command of their officers, are habituated to the same prompt obedience which
takes place in standing armies. What they were before they took the field, is of little
importance. They necessarily become in every respect a standing army, after they have
passed a few campaigns in it. Should the war in America drag out through another
campaign, the American militia may become, in every respect, a match for that standing
army, of which the valour appeared, in the last war at least, not inferior to that of the
hardiest veterans of France and Spain.

This distinction being well understood, the history of all ages, it will be found,
hears testimony to the irresistible superiority which a well regulated standing army has

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THE WEALTH OF NATIONS oe : =.

over a militia.

One of the first standing armies, of which we have any distinct account in any
well authenticated history, is that of Philip of Macedon. His frequent wars with the
Thracians, Illyrians, Thessalians, and some of the Greek cities in the neighbourhood of
Macedon, gradually formed his troops, which in the beginning were probably militia,
to the exact discipline of a standing army. When he was at peace, which he was very
seldom, and never for any long time together, he was careful not to disband that army.
It vanquished and subdued, after a long and violent struggle, indeed, the gallant and
well exercised militias of the principal republics of ancient Greece; and afterwards,
with very little struggle, the effeminate and ill exercised militia of the great Persian
empire. The fall of the Greek republics, and of the Persian empire was the effect of
the irresistible superiority which a standing arm has over every other sort of militia. It
is the first great revolution in the affairs of mankind of which history has preserved
any distinct and circumstantial account.

The fall of Carthage, and the consequent elevation of Rome, is the second. All the
varieties in the fortune of those two famous republics may very well be accounted for
from the same cause.

From the end of the first to the beginning of the second Carthaginian war, the
armies of Carthage were continually in the field, and employed under three great
generals, who succeeded one another in the command; Amilcar, his son-in-law
Asdrubal, and his son Annibal: first in chastising their own rebellious slaves, afterwards
in subduing the revolted nations of Africa; and lastly, in conquering the great kingdom
of Spain. The army which Annibal led from Spain into Italy must necessarily, in those
different wars, have been gradually formed to the exact discipline of a standing army.
The Romans, in the meantime, though they had not been altogether at peace, yet they
had not, during this period, been engaged in any war of very great consequence; and
their military discipline, it is generally said, was a good deal relaxed. The Roman armies
which Annibal encountered at Trebi, Thrasymenus, and Cannae, were militia opposed
to a standing army. This circumstance, it is probable, contributed more than any other
to determine the fate of those battles.

The standing army which Annibal left behind him in Spain had the like superiority
over the militia which the Romans sent to oppose it; and, in a few years, under the
command of his brother, the younger Asdrubal, expelled them almost entirely from
that country.

Annibal was ill supplied from home. The Roman militia, being continually in the
field, became, in the progress of the war, a well disciplined and well exercised standing
army; and the superiority of Annibal grew every day less and less. Asdrubal judged
it necessary to lead the whole, or almost the whole, of the standing army which he
commanded in Spain, to the assistance of his brother in Italy. In this march, he is
said to have been misled by his guides; and in a country which he did not know, was
surprised and attacked, by another standing army, in every respect equal or superior to
his own, and was entirely defeated.

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ADAM SMITH

When Asdrubal had left Spain, the great Scipio found nothing to oppose him but
a militia inferior to his own. He conquered and subdued that militia, and, in the course
of the war, his own militia necessarily became a well disciplined and well exercised
standing army. That standing army was afterwards carried to Africa, where it found
nothing but a militia to oppose it. In order to defend Carthage, it became necessary to
recal the standing army of Annibal. The disheartened and frequently defeated African
militia joined it, and, at the battle of Zama, composed the greater part of the troops of
Annibal. The event of that day determined the fate of the two rival republics.

From the end of the second Carthaginian war till the fall of the Roman republic, the
armies of Rome were in every respect standing armies. The standing army of Macedon
made some resistance to their arms. In the height of their grandeur, it cost them two
great wars, and three great battles, to subdue that little kingdom, of which the conquest
would probably have been still more difficult, had it not been for the cowardice of its
last king. The militias of all the civilized nations of the ancient world, of Greece, of
Syria, and of Egypt, made but a feeble resistance to the standing armies of Rome. The
militias of some barbarous nations defended themselves much better. The Scythian
ot Tartar militia, which Mithridates drew from the countries north of the Euxine and
Caspian seas, were the most formidable enemies whom the Romans had to encounter
after the second Carthaginian war. The Parthian and German militias, too, were
always respectable, and upon several occasions, gained very considerable advantages
over the Roman armies. In general, however, and when the Roman armies were well
commanded, they appear to have been very much superior; and if the Romans did not
pursue the final conquest either of Parthia or Germany, it was probably because they
judged that it was not worth while to add those two barbarous countries to an empire
which was already too large. The ancient Parthians appear to have been a nation of
Scythian or Tartar extraction, and to have always retained a good deal of the manners
of their ancestors. The ancient Germans were, like the Scythians or Tartars, a nation
of wandering shepherds, who went to war under the same chiefs whom they were
accustomed to follow in peace. ‘Their militia was exactly of the same kind with that of
the Scythians or Tartars, from whom, too, they were probably descended.

Many different causes contributed to relax the discipline of the Roman armies. Its
extreme severity was, perhaps, one of those causes. In the days of their grandeur, when
no enemy appeared capable of opposing them, their heavy armour was laid aside as
unnecessarily burdensome, their laborious exercises were neglected, as unnecessarily
toilsome. Under the Roman emperors, besides, the standing armies of Rome, those
particularly which guarded the German and Pannonian frontiers, became dangerous
to their masters, against whom they used frequently to set up their own generals. In
order to render them less formidable, according to some authors, Dioclesian, according
to others, Constantine, first withdrew them from the frontier, where they had always
before been encamped in great bodies, generally of two or three legions each, and
dispersed them in small bodies through the different provincial towns, from whence
they were scarce ever removed, but when it became necessary to repel an invasion. Small

509

- THE WEALTH OF NATIONS ~—

bodies of soldiers, quartered in trading and manufacturing towns, and seldom removed
from those quarters, became themselves trades men, attificers, and manufacturers. The
civil came to predominate over the military character; and the standing armies of Rome
gradually degenerated into a corrupt, neglected, and undisciplined militia, incapable of
resisting the attack of the German and Scythian militias, which soon afterwards invaded
the western empire. It was only by hiring the militia of some of those nations to oppose
to that of others, that the emperors were for some time able to defend themselves.
The fall of the western empire is the third great revolution in the affairs of mankind,
of which ancient history has preserved any distinct or circumstantial account. It was
brought about by the irresistible superiority which the militia of a barbarous has over
that of a civilized nation; which the militia of a nation of shepherds has over that of
a nation of husbandmen, artificers, and manufacturers. The victories which have been
gained by militias have generally been, not over standing armies, but over other militias,
in exercise and discipline inferior to themselves. Such were the victories which the
Greek militia gained over that of the Persian empire; and such, too, were those which,
in later times, the Swiss militia gained over that of the Austrians and Burgundians.

The military force of the German and Scythian nations, who established themselves
upon tuins of the western empire, continued for some time to be of the same kind
in their new settlements, as it had been in their original country. It was a militia of
shepherds and husbandmen, which, in time of war, took the field under the command
of the same chieftains whom it was accustomed to obey in peace. It was, therefore,
tolerably well exercised, and tolerably well disciplined. As arts and industry advanced,
however, the authority of the chieftains gradually decayed, and the great body of the
people had less time to spare for military exercises. Both the discipline and the exercise
of the feudal militia, therefore, went gradually to ruin, and standing armies were
gradually introduced to supply the place of it. When the expedient of a standing army,
besides, had once been adopted by one civilized nation, it became necessary that all its
neighbours should follow the example. They soon found that their safety depended
upon their doing so, and that their own militia was altogether incapable of resisting the
attack of such an army.

The soldiers of a standing army, though they may never have seen an enemy,
yet have frequently appeared to possess all the courage of veteran troops, and, the
very moment that they took the field, to have been fit to face the hardiest and most
experienced veterans. In 1756, when the Russian army marched into Poland, the valour
of the Russian soldiers did not appear inferior to that of the Prussians, at that time
supposed to be the hardiest and most experienced veterans in Europe. The Russian
empire, however, had enjoyed a profound peace for near twenty years before, and could
at that time have very few soldiers who had ever seen an enemy. When the Spanish
war broke out in 1739, England had enjoyed a profound peace for about eight-and-
twenty years. The valour of her soldiers, however, far from being corrupted by that
long peace, was never more distinguished than in the attempt upon Carthagena, the
first unfortunate exploit of that unfortunate war. Ina long peace, the generals, perhaps,

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ADAM SMITH

may sometimes forget their skill; but where a well regulated standing army has been
kept up, the soldiers seem never to forget their valour.

Whena civilized nation depends for its defence upon a militia, itis at all times exposed
to be conquered by any barbarous nation which happens to be in its neighbourhood.
The frequent conquests of all the civilized countries in Asia by the Tartars, sufficiently
demonstrates the natural superiority which the militia of a barbarous has over that of
a civilized nation. A well regulated standing army is superior to every militia. Such an
army, as it can best be maintained by an opulent and civilized nation, so it can alone
defend such a nation against the invasion of a poor and barbarous neighbour. It is only
by means of a standing army, therefore, that the civilization of any country can be
perpetuated, or even preserved, for any considerable time.

As it is only by means of a well regulated standing army, that a civilized country can
be defended, so it is only by means of it that a barbarous country can be suddenly and
tolerably civilized. A standing army establishes, with an irresistible force, the law of the
sovereign through the remotest provinces of the empire, and maintains some degree
of regular government in countries which could not otherwise admit of any. Whoever
examines with attention, the improvements which Peter the Great introduced into the
Russian empire, will find that they almost all resolve themselves into the establishment
of a well regulated standing army. It is the instrument which executes and maintains all
his other regulations. That degree of order and internal peace, which that empire has
ever since enjoyed, is altogether owing to the influence of that army.

Men of republican principles have been jealous of a standing army, as dangerous to
liberty. It certainly is so, wherever the interest of the general, and that of the principal
officers, are not necessarily connected with the support of the constitution of the state.
The standing army of Caesar destroyed the Roman republic. The standing army of
Cromwell turned the long parliament out of doors. But where the sovereign is himself
the general, and the principal nobility and gentry of the country the chief officers of
the army; where the military force is placed under the command of those who have the
greatest interest in the support of the civil authority, because they have themselves the
greatest share of that authority, a standing army can never be dangerous to liberty. On
the contrary, it may, in some cases, be favourable to liberty. The security which it gives
to the sovereign renders unnecessary that troublesome jealousy, which, in some modern
republics, seems to watch over the minutest actions, and to be at all times ready to disturb
the peace of every citizen. Where the security of the magistrate, though supported by
the principal people of the country, is endangered by every popular discontent; where
a small tumult is capable of bringing about in a few hours a great revolution, the whole
authority of government must be employed to suppress and punish every murmur and
complaint against it. To a sovereign, on the contrary, who feels himself supported, not
only by the natural aristocracy of the country, but by a well regulated standing army,
the rudest, the most groundless, and the most licentious remonstrances, can give little
disturbance. He can safely pardon or neglect them, and his consciousness of his own
superiority naturally disposes him to do so. That degree of liberty which approaches

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to licentiousness, can be tolerated only in countries where the sovereign is secured
by a well regulated standing army. It is in such countries only, that the public safety
does not require that the sovereign should be trusted with any discretionary power, for
suppressing even the impertinent wantonness of this licentious liberty.

The first duty of the sovereign, therefore, that of defending the society from the
violence and injustice of other independent societies, grows gradually more and more
expensive, as the society advances in civilization. The military force of the society,
which originally cost the sovereign no expense, either in time of peace, or in time of
wart, must, in the progress of improvement, first be maintained by him in time of war,
and afterwards even in time of peace.

The great change introduced into the art of war by the invention of fire-arms, has
enhanced still further both the expense of exercising and disciplining any particular
number of soldiers in time of peace, and that of employing them in time of war.
Both their arms and their ammunition are become more expensive. A musket is a
more expensive machine than a javelin or a bow and arrows; a cannon or a mortar,
than a balista or a catapulta. The powder which is spent in a modern review is lost
irrecoverably, and occasions a very considerable expense. The javelins and arrows
which were thrown or shot in an ancient one, could easily be picked up again, and were,
besides, of very little value. The cannon and the mortar are not only much dearer, but
much heavier machines than the balista or catapulta; and require a greater expense,
not only to prepare them for the field, but to carry them to it. As the superiority of
the modern artillery, too, over that of the ancients, is very great; it has become much
more difficult, and consequently much more expensive, to fortify a town, so as to
resist, even for a few weeks, the attack of that superior artillery. In modern times, many
different causes contribute to render the defence of the society more expensive. The
unavoidable effects of the natural progress of improvement have, in this respect, been
a good deal enhanced by a great revolution in the art of war, to which a mere accident,
the invention of gunpowder, seems to have given occasion.

In modern war, the great expense of firearms gives an evident advantage to the
nation which can best afford that expense; and, consequently, to an opulent and
civilized, over a poor and barbarous nation. In ancient times, the opulent and civilized
found it difficult to defend themselves against the poor and barbarous nations. In
modern times, the poor and barbarous find it difficult to defend themselves against
the opulent and civilized. The invention of fire-arms, an invention which at first sight
appears to be so pernicious, is certainly favourable, both to the permanency and to the
extension of civilization.

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PART II.

Of the Expense of Justice

The second duty of the sovereign, that of protecting, as far as possible, every
member of the society from the injustice or oppression of every other member of
it, or the duty of establishing an exact administration of justice, requires two very
different degrees of expense in the different periods of society.

Among nations of hunters, as there is scarce any property, or at least none that
exceeds the value of two or three days labour; so there is seldom any established
magistrate, or any regular administration of justice. Men who have no property, can
injure one another only in their persons or reputations. But when one man kills,
wounds, beats, or defames another, though he to whom the injury is done suffers, he
who does it receives no benefit. It is otherwise with the injuries to property. The benefit
of the person who does the injury is often equal to the loss of him who suffers it.
Envy, malice, or resentment, are the only passions which can prompt one man to injure
another in his person or reputation. But the greater part of men are not very frequently
under the influence of those passions; and the very worst men are so only occasionally.
As their gratification, too, how agreeable soever it may be to certain characters, is
not attended with any real or permanent advantage, it is, in the greater part of men,
commonly restrained by prudential considerations. Men may live together in society
with some tolerable degree of security, though there is no civil magistrate to protect
them from the injustice of those passions. But avarice and ambition in the rich, in the
poor the hatred of labour and the love of present ease and enjoyment, are the passions
which prompt to invade property; passions much more steady in their operation, and
much more universal in their influence. Wherever there is a great property, there is
great inequality. For one very rich man, there must be at least five hundred poor, and
the affluence of the few supposes the indigence of the many. The affluence of the rich
excites the indignation of the poor, who are often both driven by want, and prompted
by envy to invade his possessions. It is only under the shelter of the civil magistrate,
that the owner of that valuable property, which is acquired by the labour of many years,
or perhaps of many successive generations, can sleep a single night in security. He is at
all times surrounded by unknown enemies, whom, though he never provoked, he can
never appease, and from whose injustice he can be protected only by the powerful arm
of the civil magistrate, continually held up to chastise it. The acquisition of valuable
and extensive property, therefore, necessarily requires the establishment of civil
government. Where there is no property, or at least none that exceeds the value of two
or three days labour, civil government is not so necessary.

Civil government supposes a certain subordination. But as the necessity of civil

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government gradually grows up with the acquisition of valuable property; so the
principal causes, which naturally introduce subordination, gradually grow up with the
growth of that valuable property.

The causes or circumstances which naturally introduce subordination, or which
naturally and antecedent to any civil institution, give some men some superiority over
the greater part of their brethren, seem to be four in number.

The first of those causes or citcumstances, is the superiority of personal
qualifications, of strength, beauty, and agility of body; of wisdom and virtue; of
prudence, justice, fortitude, and moderation of mind. The qualifications of the body,
unless supported by those of the mind, can give little authority in any period of
society. He is a very strong man, who, by mere strength of body, can force two weak
ones to obey him. The qualifications of the mind can alone give very great authority.
They are however, invisible qualities; always disputable, and generally disputed. No
society, whether barbarous or civilized, has ever found it convenient to settle the rules
of precedency of rank and subordination, according to those invisible qualities; but
according to something that is more plain and palpable.

The second of those causes or circumstances, is the superiority of age. An old man,
provided his age is not so far advanced as to give suspicion of dotage, is everywhere
mote respected than a young man of equal rank, fortune, and abilities. Among nations
of hunters, such as the native tribes of North America, age is the sole foundation of
rank and precedency. Among them, father is the appellation of a superior; brother, of
an equal; and son, of an inferior. In the most opulent and civilized nations, age regulates
rank among those who ate in every other respect equal; and among whom, therefore,
there is nothing else to regulate it. Among brothers and among sisters, the eldest always
takes place; and in the succession of the paternal estate, every thing which cannot be
divided, but must go entire to one person, such as a title of honour, is in most cases
given to the eldest. Age is a plain and palpable quality, which admits of no dispute.

The third of those causes or circumstances, is the superiority of fortune. The
authority of riches, however, though great in every age of society, is, perhaps, greatest
in the rudest ages of society, which admits of any considerable inequality of fortune. A
Tartar chief, the increase of whose flocks and herds is sufficient to maintain a thousand
men, cannot well employ that increase in any other way than in maintaining a thousand
men. The rude state of his society does not afford him any manufactured produce
any trinkets or baubles of any kind, for which he can exchange that part of his rude
produce which is over and above his own consumption. The thousand men whom he
thus maintains, depending entirely upon him for their subsistence, must both obey
his orders in war, and submit to his jurisdiction in peace. He is necessarily both their
general and their judge, and his chieftainship is the necessary effect of the superiority
of his fortune. In an opulent and civilized society, a man may possess a much greater
fortune, and yet not be able to command a dozen of people. Though the produce of
his estate may be sufficient to maintain, and may, perhaps, actually maintain, more
than a thousand people, yet, as those people pay for every thing which they get from

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him, as he gives scarce any thing to any body but in exchange for an equivalent, there
is scarce anybody who considers himself as entirely dependent upon him, and his
authority extends only over a few menial servants. The authority of fortune, however,
is very great, even in an opulent and civilized society. That it is much greater than that
either of age or of personal qualities, has been the constant complaint of every period
of society which admitted of any considerable inequality of fortune. The first period
of society, that of hunters, admits of no such inequality. Universal poverty establishes
their universal equality; and the superiority, either of age or of personal qualities, are
the feeble, but the sole foundations of authority and subordination. There is, therefore,
little or no authority or subordination in this period of society. The second period of
society, that of shepherds, admits of very great inequalities of fortune, and there is
no period in which the superiority of fortune gives so great authority to those who
possess it. There is no period, accordingly, in which authority and subordination are
more perfectly established. The authority of an Arabian scherif is very great; that of a
Tartar khan altogether despotical.

The fourth of those causes or circumstances, is the superiority of birth. Superiority
of birth supposes an ancient superiority of fortune in the family of the person who
claims it. All families are equally ancient; and the ancestors of the prince, though they
may be better known, cannot well be more numerous than those of the beggar. Antiquity
of family means everywhere the antiquity either of wealth, or of that greatness which
is commonly either founded upon wealth, or accompanied with it. Upstart greatness is
everywhere less respected than ancient greatness. The hatred of usurpers, the love of
the family of an ancient monarch, are in a great measure founded upon the contempt
which men naturally have for the former, and upon their veneration for the latter. As a
military officer submits, without reluctance, to the authority of a superior by whom he
has always been commanded, but cannot bear that his inferior should be set over his
head; so men easily submit to a family to whom they and their ancestors have always
submitted; but are fired with indignation when another family, in whom they had never
acknowledged any such superiority, assumes a dominion over them.

The distinction of birth, being subsequent to the inequality of fortune, can have
no place in nations of hunters, among whom all men, being equal in fortune, must
likewise be very nearly equal in birth. The son of a wise and brave man may, indeed,
even among them, be somewhat more respected than a man of equal merit, who has
the misfortune to be the son of a fool or a coward. The difference, however will not be
very great; and there never was, I believe, a great family in the world, whose illustration
was entirely derived from the inheritance of wisdom and virtue.

The distinction of birth not only may, but always does, take place among nations of
shepherds. Such nations are always strangers to every sort of luxury, and great wealth
can scarce ever be dissipated among them by improvident profusion. There are no
nations, accordingly, who abound more in families revered and honoured on account
of their descent from a long race of great and illustrious ancestors, because there are
no nations among whom wealth is likely to continue longer in the same families.

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Birth and fortune are evidently the two circumstances which principally set one
man above another. They are the two great sources of personal distinction, and are,
therefore, the principal causes which naturally establish authority and subordination
among men. Among nations of shepherds, both those causes operate with their full
force. The great shepherd or herdsman, respected on account of his great wealth, and
of the great number of those who depend upon him for subsistence, and revered on
account of the nobleness of his birth, and of the immemorial antiquity or his illustrious
family, has a natural authority over all the inferior shepherds or herdsmen of his horde
or clan. He can command the united force of a greater number of people than any of
them. His military power is greater than that of any of them. In time of war, they are all
of them naturally disposed to muster themselves under his banner, rather than under
that of any other person; and his birth and fortune thus naturally procure to him some
sort of executive power. By commanding, too, the united force of a greater number
of people than any of them, he is best able to compel any one of them, who may have
injured another, to compensate the wrong. He is the person, therefore, to whom all
those who are too weak to defend themselves naturally look up for protection. It is to
him that they naturally complain of the injuries which they imagine have been done
to them; and his interposition, in such cases, is more easily submitted to, even by the
person complained of, than that of any other person would be. His birth and fortune
thus naturally procure him some sort of judicial authority.

It is in the age of shepherds, in the second period of society, that the inequality of
fortune first begins to take place, and introduces among men a degree of authority and
subordination, which could not possibly exist before. It thereby introduces some degree
of that civil government which is indispensably necessary for its own preservation;
and it seems to do this naturally, and even independent of the consideration of
that necessity. The consideration of that necessity comes, no doubt, afterwards, to
contribute very much to maintain and secure that authority and subordination. The
rich, in particular, are necessarily interested to support that order of things, which can
alone secure them in the possession of their own advantages. Men of inferior wealth
combine to defend those of superior wealth in the possession of their property, in
order that men of superior wealth may combine to defend them in the possession of
theirs. All the inferior shepherds and herdsmen feel, that the security of their own herds
and flocks depends upon the security of those of the great shepherd or herdsman; that
the maintenance of their lesser authority depends upon that of his greater authority;
and that upon their subordination to him depends his power of keeping their inferiors
in subordination to them. They constitute a sort of little nobility, who feel themselves
interested to defend the property, and to support the authority, of their own little
sovereign, in order that he may be able to defend their property, and to support their
authority. Civil government, so far as it is instituted for the security of property, is, in
reality, instituted for the defence of the rich against the poor, or of those who have
some property against those who have none at all.

The judicial authority of such a sovereign, however, far from being a cause of

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expense, was, for a long time, a source of revenue to him. The persons who applied to
him for justice were always willing to pay for it, and a present never failed to accompany
a petition. After the authority of the sovereign, too, was thoroughly established, the
person found guilty, over and above the satisfaction which he was obliged to make to
the party, was like-wise forced to pay an amercement to the sovereign. He had given
trouble, he had disturbed, he had broke the peace of his lord the king, and for those
offences an amercement was thought due. In the Tartar governments of Asia, in the
governments of Europe which were founded by the German and Scythian nations
who overturned the Roman empire, the administration of justice was a considerable
source of revenue, both to the sovereign, and to all the lesser chiefs or lords who
exercised under him any particular jurisdiction, either over some particular tribe or
clan, or over some particular territory or district. Originally, both the sovereign and the
inferior chiefs used to exercise this jurisdiction in their own persons. Afterwards, they
universally found it convenient to delegate it to some substitute, bailiff, or judge. This
substitute, however, was still obliged to account to his principal or constituent for the
profits of the jurisdiction. Whoever reads the instructions (They are to be found in
Tyrol’s History of England) which were given to the judges of the circuit in the time of
Henry I will see clearly that those judges were a sort of itinerant factors, sent round
the country for the purpose of levying certain branches of the king’s revenue. In those
days, the administration of justice not only afforded a certain revenue to the sovereign,
but, to procure this revenue, seems to have been one of the principal advantages which
he proposed to obtain by the administration of justice.

This scheme of making the administration of justice subservient to the purposes
of revenue, could scarce fail to be productive of several very gross abuses. The person
who applied for justice with a large present in his hand, was likely to get something more
than justice; while he who applied for it with a small one was likely to get something less.
Justice, too, might frequently be delayed, in order that this present might be repeated.
The amercement, besides, of the person complained of, might frequently suggest a
very strong reason for finding him in the wrong, even when he had not really been so.
That such abuses were far from being uncommon, the ancient history of every country
in Europe bears witness.

When the sovereign or chief exercises his judicial authority in his own person, how
much soever he might abuse it, it must have been scarce possible to get any redress;
because there could seldom be any body powerful enough to call him to account. When
he exercised it by a bailiff, indeed, redress might sometimes be had. If it was for his
own benefit only, that the bailiff had been guilty of an act of injustice, the sovereign
himself might not always be unwilling to punish him, or to oblige him to repair the
wrong, But if it was for the benefit of his sovereign; if it was in order to make court
to the person who appointed him, and who might prefer him, that he had committed
any act of oppression; redress would, upon most occasions, be as impossible as if the
sovereign had committed it himself. In all barbarous governments, accordingly, in all
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ruins of the Roman empire, the administration of justice appears for a long time to
have been extremely corrupt; far from being quite equal and impartial, even under the
best monarchs, and altogether profligate under the worst.

Among nations of shepherds, where the sovereign or chief is only the greatest
shepherd or herdsman of the horde or clan, he is maintained in the same manner
as any of his vassals or subjects, by the increase of his own herds or flocks. Among
those nations of husbandmen, who are but just come out of the shepherd state, and
who are not much advanced beyond that state, such as the Greek tribes appear to have
been about the time of the Trojan war, and our German and Scythian ancestors, when
they first settled upon the ruins of the western empire; the sovereign or chief is, in
the same manner, only the greatest landlord of the country, and is maintained in the
same manner as any other landlord, by a revenue derived from his own private estate,
ot from what, in modern Europe, was called the demesne of the crown. His subjects,
upon ordinary occasions, contribute nothing to his support, except when, in otder to
protect them from the oppression of some of their fellow-subjects, they stand in need
of his authority. The presents which they make him upon such occasions constitute the
whole ordinary revenue, the whole of the emoluments which, except, perhaps, upon
some very extraordinary emergencies, he derives from his dominion over them. When
Agamemnon, in Homer, offers to Achilles, for his friendship, the sovereignty of seven
Greek cities, the sole advantage which he mentions as likely to be derived from it was,
that the people would honour him with presents. As long as such presents, as long as
the emoluments of justice, or what may be called the fees of court, constituted, in this
mannet, the whole ordinary revenue which the sovereign derived from his sovereignty, it
could not well be expected, it could not even decently be proposed, that he should give
them up altogether. It might, and it frequently was proposed, that he should regulate
and ascertain them. But after they had been so regulated and ascertained, how to hinder
a person who was all-powerful from extending them beyond those regulations, was still
very difficult, not to say impossible. During the continuance of this state of things,
therefore, the corruption of justice, naturally resulting from the arbitrary and uncertain
nature of those presents, scarce admitted of any effectual remedy.

But when, from different causes, chiefly from the continually increasing expense
of defending the nation against the invasion of other nations, the private estate of
the sovereign had become altogether insufficient for defraying the expense of the
sovereignty; and when it had become necessary that the people should, for their own
security, contribute towards this expense by taxes of different kinds; it seems to have
been very commonly stipulated, that no present for the administration of justice
should, under any pretence, be accepted either by the sovereign, or by his bailiffs and
substitutes, the judges. Those presents, it seems to have been supposed, could more
easily be abolished altogether, than effectually regulated and ascertained. Fixed salaries
were appointed to the judges, which were supposed to compensate to them the loss
of whatever might have been their share of the ancient emoluments of justice; as the
taxes more than compensated to the sovereign the loss of his. Justice was then said to

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be administered gratis.

Justice, however, never was in reality administered gratis in any country. Lawyers
and attorneys, at least, must always be paid by the parties; and if they were not, they
would perform their duty still worse than they actually perform it. The fees annually
paid to lawyers and attorneys, amount, in every court, to a much greater sum than the
salaries of the judges. The citcumstance of those salaries being paid by the crown, can
nowhere much diminish the necessary expense of a law-suit. But it was not so much
to diminish the expense, as to prevent the corruption of justice, that the judges were
prohibited from receiving my present or fee from the parties.

The office of judge is in itself so very honourable, that men are willing to accept
of it, though accompanied with very small emoluments. The inferior office of justice
of peace, though attended with a good deal of trouble, and in most cases with no
emoluments at all, is an object of ambition to the greater part of our country gentlemen.
The salaries of all the different judges, high and low, together with the whole expense
of the administration and execution of justice, even where it is not managed with very
good economy, makes, in any civilized country, but a very inconsiderable part of the
whole expense of government.

The whole expense of justice, too, might easily be defrayed by the fees of court;
and, without exposing the administration of justice to any real hazard of corruption,
the public revenue might thus be entirely discharged from a certain, though perhaps
but a small incumbrance. It is difficult to regulate the fees of court effectually, where a
person so powerful as the sovereign is to share in them and to derive any considerable
part of his revenue from them. It is very easy, where the judge is the principal person
who can reap any benefit from them. The law can very easily oblige the judge to respect
the regulation though it might not always be able to make the sovereign respect it. Where
the fees of court are precisely regulated and ascertained where they are paid all at once,
at a certain period of every process, into the hands of a cashier or receiver, to be by him
distributed in certain known proportions among the different judges after the process
is decided and not till it is decided; there seems to be no more danger of corruption
than when such fees ate prohibited altogether. Those fees, without occasioning any
considerable increase in the expense of a law-suit, might be rendered fully sufficient
for defraying the whole expense of justice. But not being paid to the judges till the
process was determined, they might be some incitement to the diligence of the court
in examining and deciding it. In courts which consisted of a considerable number of
judges, by proportioning the share of each judge to the number of hours and days
which he had employed in examining the process, either in the court, or in a committee,
by order of the court, those fees might give some encouragement to the diligence
of each particular judge. Public services are never better performed, than when their
reward comes only in consequence of their being performed, and is proportioned to
the diligence employed in performing them. In the different parliaments of France,
the fees of court (called epices and vacations) constitute the far greater part of the
emoluments of the judges. After all deductions are made, the neat salary paid by the

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crown to a counsellor or judge in the parliament of Thoulouse, in rank and dignity the
second parliament of the kingdom, amounts only to 150 livres, about £6:11s. sterling
a-year. About seven years ago, that sum was in the same place the ordinary yearly
wages of a common footman. The distribution of these epices, too, is according to
the diligence of the judges. A diligent judge gains a comfortable, though moderate
revenue, by his office; an idle one gets little more than his salary. Those parliaments are,
perhaps, in many respects, not very convenient courts of justice; but they have never
been accused; they seem never even to have been suspected of corruption.

The fees of court seem originally to have been the principal support of the
different courts of justice in England. Each court endeavoured to draw to itself as
much business as it could, and was, upon that account, willing to take cognizance of
many suits which were not originally intended to fall under its jurisdiction. The court
of king’s bench, instituted for the trial of criminal causes only, took cognizance of
civil suits; the plaintiff pretending that the defendant, in not doing him justice, had
been guilty of some trespass or misdemeanour. The court of exchequer, instituted
for the levying of the king’s revenue, and for enforcing the payment of such debts
only as were due to the king, took cognizance of all other contract debts; the planitiff
alleging that he could not pay the king, because the defendant would not pay him. In
consequence of such fictions, it came, in many cases, to depend altogether upon the
parties, before what court they would choose to have their cause tried, and each court
endeavoured, by superior dispatch and impartiality, to draw to itself as many causes
as it could. The present admirable constitution of the courts of justice in England
was, perhaps, originally, in a great measure, formed by this emulation, which anciently
took place between their respective judges: each judge endeavouring to give, in his
own court, the speediest and most effectual remedy which the law would admit, for
every sort of injustice. Originally, the courts of law gave damages only for breach of
contract. The court of chancery, as a court of conscience, first took upon it to enforce
the specific performance of agreements. When the breach of contract consisted in
the non-payment of money, the damage sustained could be compensated in no other
way than by ordering payment, which was equivalent to a specific performance of the
agreement. In such cases, therefore, the remedy of the courts of law was sufficient.
It was not so in others. When the tenant sued his lord for having unjustly outed him
of his lease, the damages which he recovered were by no means equivalent to the
possession of the land. Such causes, therefore, for some time, went all to the court of
chancery, to the no small loss of the courts of law. It was to draw back such causes to
themselves, that the courts of law are said to have invented the artificial and fictitious
writ of ejectment, the most effectual remedy for an unjust outer or dispossession of
land.

A stamp-duty upon the law proceedings of each particular court, to be levied
by that court, and applied towards the maintenance of the judges, and other officers
belonging to it, might in the same manner, afford a revenue sufficient for defraying the
expense of the administration of justice, without bringing any burden upon the general

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revenue of the society. The judges, indeed, might in this case, be under the temptation
of multiplying unnecessarily the proceedings upon every cause, in order to inctease, as
much as possible, the produce of such a stamp-duty. It has been the custom in modern
Europe to regulate, upon most occasions, the payment of the attorneys and clerks of
court according to the number of pages which they had occasion to write; the court,
however, requiring that each page should contain so many lines, and each line so many
words. In order to increase their payment, the attorneys and clerks have contrived to
multiply words beyond all necessity, to the corruption of the law language of, I believe,
every court of justice in Europe. A like temptation might, perhaps, occasion a like
corruption in the form of law proceedings.

But whether the administration of justice be so contrived as to defray its own
expense, or whether the judges be maintained by fixed salaries paid to them from some
other fund, it does not seen necessary that the person or persons entrusted with the
executive power should be charged with the management of that fund, or with the
payment of those salaries. That fund might arise from the rent of landed estates, the
management of each estate being entrusted to the particular court which was to be
maintained by it. That fund might arise even from the interest of a sum of money,
the lending out of which might, in the same manner, be entrusted to the court which
was to be maintained by it. A part, though indeed but a small part of the salary of the
judges of the court of session in Scotland, arises from the interest of a sum of money.
The necessary instability of such a fund seems, however, to render it an improper one
for the maintenance of an institution which ought to last for ever.

The separation of the judicial from the executive power, seems originally to have
atisen from the increasing business of the society, in consequence of its increasing
improvement. The administration of justice became so laborious and so complicated a
duty, as to require the undivided attention of the person to whom it was entrusted. The
person entrusted with the executive power, not having leisure to attend to the decision
of private causes himself, a deputy was appointed to decide them in his stead. In the
progress of the Roman greatness, the consul was too much occupied with the political
affairs of the state, to attend to the administration of justice. A praetor, therefore, was
appointed to administer it in his stead. In the progress of the European monarchies,
which were founded upon the ruins of the Roman empire, the sovereigns and the great
lords came universally to consider the administration of justice as an office both too
laborious and too ignoble for them to execute in their own persons. They universally,
therefore, discharged themselves of it, by appointing a deputy, bailiff or judge.

When the judicial is united to the executive power, it is scarce possible that justice
should not frequently be sacrificed to what is vulgarly called politics. The persons
entrusted with the great interests of the state may even without any corrupt views,
sometimes imagine it necessary to sacrifice to those interests the rights of a private
man. But upon the impartial administration of justice depends the liberty of every
individual, the sense which he has of his own security. In order to make every individual
feel himself perfectly secure in the possession of every right which belongs to him, it

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is not only necessary that the judicial should be separated from the executive power,
but that it should be rendered as much as possible independent of that power. The
judge should not be liable to be removed from his office according to the caprice of
that power. The regular payment of his salary should not depend upon the good will,
or even upon the good economy of that power.

Dae

ADAM SMITH

PART III.

Of the Expense of public Works and public Institutions.

The third and last duty of the sovereign or commonwealth, is that of erecting and
maintaining those public institutions and those public works, which though they may
be in the highest degree advantageous to a great society, are, however, of such a nature,
that the profit could never repay the expense to any individual, or small number of
individuals; and which it, therefore, cannot be expected that any individual, or small
number of individuals, should erect or maintain. The performance of this duty requires,
too, very different degrees of expense in the different periods of society.

After the public institutions and public works necessary for the defence of
the society, and for the administration of justice, both of which have already been
mentioned, the other works and institutions of this kind are chiefly for facilitating the
commerce of the society, and those for promoting the instruction of the people. The
institutions for instruction are of two kinds: those for the education of the youth,
and those for the instruction of people of all ages. The consideration of the manner
in which the expense of those different sorts of public works and institutions may
be most properly defrayed will divide this third part of the present chapter into three
different articles.

ARTICLE I—Of the public Works and Institutions for facilitating the Commerce
of the Society.

And, first, of those which are necessary for facilitating Commerce in general.

That the erection and maintenance of the public works which facilitate the
commerce of any country, such as good roads, bridges, navigable canals, harbours, etc.
must require very different degrees of expense in the different periods of society, is
evident without any proof. The expense of making and maintaining the public roads of
any country must evidently increase with the annual produce of the land and labour of
that country, or with the quantity and weight of the goods which it becomes necessary
to fetch and carry upon those roads. The strength of a bridge must be suited to the
number and weight of the carriages which are likely to pass over it. The depth and the
supply of water for a navigable canal must be proportioned to the number and tonnage
of the lighters which are likely to carry goods upon it; the extent of a harbour, to the
number of the shipping which are likely to take shelter in it.

It does not seem necessary that the expense of those public works should be
defrayed from that public revenue, as it is commonly called, of which the collection and
application are in most countries, assigned to the executive power. The greater part of

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THE WEALTH OF NATIONS

such public works may easily be so managed, as to afford a particular revenue, sufficient
for defraying their own expense without bringing any burden upon the general revenue
of the society.

A highway, a bridge, a navigable canal, for example, may, in most cases, be both
made add maintained by a small toll upon the carriages which make use of them;
a harbour, by a moderate port-duty upon the tonnage of the shipping which load
or unload in it. The coinage, another institution for facilitating commerce, in many
countries, not only defrays its own expense, but affords a small revenue or a seignorage
to the sovereign. The post-office, another institution for the same purpose, over and
above defraying its own expense, affords, in almost all countries, a very considerable
revenue to the sovereign.

When the carriages which pass over a highway or a bridge, and the lighters which
sail upon a navigable canal, pay toll in proportion to their weight or their tonnage, they
pay for the maintenance of those public works exactly in proportion to the wear and
tear which they occasion of them. It seems scarce possible to invent a more equitable
way of maintaining such works. This tax or toll, too, though it is advanced by the
carrier, is finally paid by the consumer, to whom it must always be charged in the price
of the goods. As the expense of carriage, however, is very much reduced by means of
such public works, the goods, notwithstanding the toll, come cheaper to the consumer
than they could otherwise have done, their price not being so much raised by the toll,
as it is lowered by the cheapness of the carriage. The person who finally pays this
tax, therefore, gains by the application more than he loses by the payment of it. His
payment is exactly in proportion to his gain. It 1s, in reality, no more than a part of
that gain which he is obliged to give up, in order to get the rest. It seems impossible
to imagine a more equitable method of raising a tax. When the toll upon carriages of
luxury, upon coaches, post-chaises, etc. is made somewhat higher in proportion to their
weight, than upon carriages of necessary use, such as carts, waggons, etc. the indolence
and vanity of the rich is made to contribute, in a very easy manner, to the relief of the
poor, by rendering cheaper the transportation of heavy goods to all the different parts
of the country.

When high-roads, bridges, canals, etc. are in this manner made and supported by
the commerce which is carried on by means of them, they can be made only where that
commerce requires them, and, consequently, where it is proper to make them. Their
expense, too, their grandeur and magnificence, must be suited to what that commerce
can afford to pay. They must be made, consequently, as it is proper to make them.
A magnificent high-road cannot be made through a desert country, where there is
little or no commerce, or merely because it happens to lead to the country villa of
the intendant of the province, or to that of some great lord, to whom the intendant
finds it convenient to make his court. A great bridge cannot be thrown over a river at
a place where nobody passes, or merely to embellish the view from the windows of a
neighbouring palace; things which sometimes happen in countries, where works of this
kind are carried on by any other revenue than that which they themselves are capable

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ADAM SMITH

of affording,

In several different parts of Europe, the toll or lock-duty upon a canal is the
property of private persons, whose private interest obliges them to keep up the canal.
If it is not kept in tolerable order, the navigation necessarily ceases altogether, and,
along with it, the whole profit which they can make by the tolls. If those tolls were put
under the management of commissioners, who had themselves no interest in them,
they might be less attentive to the maintenance of the works which produced them.
The canal of Languedoc cost the king of France and the province upwards of thirteen
millions of livres, which (at twenty-eight livres the mark of silver, the value of French
money in the end of the last century) amounted to upwards of nine hundred thousand
pounds sterling. When that great work was finished, the most likely method, it was
found, of keeping it in constant repair, was to make a present of the tolls to Riquet,
the engineer who planned and conducted the work. Those tolls constitute, at present,
a very large estate to the different branches of the family of that gentleman, who have,
therefore, a great interest to keep the work in constant repair. But had those tolls been
put under the management of commissioners, who had no such interest, they might
perhaps, have been dissipated in ornamental and unnecessary expenses, while the most
essential parts of the works were allowed to go to ruin.

The tolls for the maintenance of a highroad cannot, with any safety, be made the
property of private persons. A high-road, though entirely neglected, does not become
altogether impassable, though a canal does. The proprietors of the tolls upon a high-
road, therefore, might neglect altogether the repair of the road, and yet continue to levy
very nearly the same tolls. It is proper, therefore, that the tolls for the maintenance of
such a work should be put under the management of commissioners or trustees.

In Great Britain, the abuses which the trustees have committed in the management
of those tolls, have, in many cases, been very justly complained of. At many turnpikes, it
has been said, the money levied is more than double of what is necessary for executing,
in the completest manner, the work, which is often executed in a very slovenly manner,
and sometimes not executed at all. The system of repairing the high-roads by tolls of
this kind, it must be observed, is not of very long standing. We should not wonder,
therefore, if it has not yet been brought to that degree of perfection of which it seems
capable. If mean and improper persons are frequently appointed trustees; and if proper
courts of inspection and account have not yet been established for controlling their
conduct, and for reducing the tolls to what is barely sufficient for executing the work to
be done by them; the recency of the institution both accounts and apologizes for those
defects, of which, by the wisdom of parliament, the greater part may, in due time, be
gradually remedied.

The money levied at the different turnpikes in Great Britain, is supposed to exceed
so much what is necessary for repairing the roads, that the savings which, with proper
economy, might be made from it, have been considered, even by some ministers, as a
very great resource, which might, at some time or another, be applied to the exigencies
of the state. Government, it has been said, by taking the management of the turnpikes

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THE WEALTH OF NATIONS

into its own hands, and by employing the soldiers, who would work for a very small
addition to their pay, could keep the roads in good order, at a much less expense than
it can be done by trustees, who have no other workmen to employ, but such as derive
their whole subsistence from their wages. A great revenue, half a million, perhaps
{Since publishing the two first editions of this book, I have got good reasons to believe
that all the turnpike tolls levied in Great Britain do not produce a neat revenue that
amounts to half a million; a sum which, under the management of government, would
not be sufficient to keep, in repair five of the principal roads in the kingdom}, it has
been pretended, might in this manner be gained, without laying any new burden upon
the people; and the turnpike roads might be made to contribute to the general expense
of the state, in the same manner as the post-office does at present.

That a considerable revenue might be gained in this manner, I have no doubt,
though probably not near so much as the projectors of this plan have supposed. The
plan itself, however, seems liable to several very important objections.

First, If the tolls which are levied at the turnpikes should ever be considered as
one of the resources for supplying the exigencies of the state, they would certainly
be augmented as those exigencies were supposed to require. According to the policy
of Great Britain, therefore, they would probably he augmented very fast. The facility
with which a great revenue could be drawn from them, would probably encourage
administration to recur very frequently te this resource. Though it may, perhaps, be
more than doubtful whether half a million could by any economy be saved out of
the present tolls, it can scarcely be doubted, but that a million might be saved out of
them, if they were doubled; and perhaps two millions, if they were tripled {I have now
good reason to believe that all these conjectural sums are by much too large.}. This
great revenue, too, might be levied without the appointment of a single new officer
to collect and receive it. But the turnpike tolls, being continually augmented in this
manner, instead of facilitating the inland commerce of the country, as at present, would
soon become a very great incumbrance upon it. The expense of transporting all heavy
goods from one part of the country to another, would soon be so much increased, the
market for all such goods, consequently, would soon be so much narrowed, that their
production would be in a great measure discouraged, and the most important branches
of the domestic industry of the country annihilated altogether.

Secondly, A tax upon carriages, in proportion to their weight, though a very equal
tax when applied to the sole purpose of repairing the roads, is a very unequal one when
applied to any other purpose, or to supply the common exigencies of the state. When
it is applied to the sole purpose above mentioned, each carriage is supposed to pay
exactly for the wear and tear which that carriage occasions of the roads. But when it is
applied to any other purpose, each carriage is supposed to pay for more than that wear
and tear, and contributes to the supply of some other exigency of the state. But as the
turnpike toll raises the price of goods in proportion to their weight and not to their
value, it is chiefly paid by the consumers of coarse and bulky, not by those of precious
and light commodities. Whatever exigency of the state, therefore, this tax might be

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ADAM SMITH

intended to supply, that exigency would be chiefly supplied at the expense of the poor,
not of the tich; at the expense of those who ate least able to supply it, not of those
who are most able.

Thirdly, If government should at any time neglect the reparation of the high-roads,
it would be still more difficult, than it is at present, to compel the proper application of
any part of the turnpike tolls. A large revenue might thus be levied upon the people,
without any part of it being applied to the only purpose to which a revenue levied in
this manner ought ever to be applied. If the meanness and poverty of the trustees of
turnpike roads render it sometimes difficult, at present, to oblige them to repair their
wrong; their wealth and greatness would render it ten times more so in the case which
is here supposed.

In France, the funds destined for the reparation of the high-roads are under the
immediate direction of the executive power. Those funds consist, partly in a certain
number of days labour, which the country people are in most parts of Europe obliged
to give to the reparation of the highways; and partly in such a portion of the general
revenue of the state as the king chooses to spare from his other expenses.

By the ancient law of France, as well as by that of most other parts of Europe,
the labour of the country people was under the direction of a local or provincial
magistracy, which had no immediate dependency upon the king’s council. But, by
the present practice, both the labour of the country people, and whatever other fund
the king may choose to assign for the reparation of the high-roads in any particular
province or generality, are entirely under the management of the intendant; an officer
who is appointed and removed by the king’s council who receives his orders from it,
and is in constant correspondence with it. In the progress of despotism, the authority
of the executive power gradually absorbs that of every other power in the state, and
assumes to itself the management of every branch of revenue which is destined for
any public purpose. In France, however, the great post-roads, the roads which make
the communication between the principal towns of the kingdom, are in general kept
in good order; and, in some provinces, are even a good deal superior to the greater
part of the turnpike roads of England. But what we call the cross roads, that is, the far
greater part of the roads in the country, are entirely neglected, and are in many places
absolutely impassable for any heavy carriage. In some places it is even dangerous to
travel on horseback, and mules are the only conveyance which can safely be trusted.
The proud minister of an ostentatious court, may frequently take pleasure in executing
a work of splendour and magnificence, such as a great highway, which is frequently seen
by the principal nobility, whose applauses not only flatter his vanity, but even contribute
to support his interest at court. But to execute a great number of little works, in which
nothing that can be done can make any great appearance, ot excite the smallest degree
of admiration in any traveller, and which, in short, have nothing to recommend them
but their extreme utility, is a business which appears, in every respect, too mean and
paltry to merit the attention of so great a magistrate. Under such an administration

therefore, such works are almost always entirely neglected.

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THE WEALTH OF NATIONS

In China, and in several other governments of Asia, the executive power charges
itself both with the reparation of the high-roads, and with the maintenance of the
navigable canals. In the instructions which are given to the governor of each province,
those objects, it is said, are constantly recommended to him, and the judgment which
the court forms of his conduct is very much regulated by the attention which he appears
to have paid to this part of his instructions. This branch of public police, accordingly, is
said to be very much attended to in all those countries, but particularly in China, where
the high-roads, and still more the navigable canals, it is pretended, exceed very much
every thing of the same kind which is known in Europe. The accounts of those works,
however, which have been transmitted to Europe, have generally been drawn up by
weak and wondering travellers; frequently by stupid and lying missionaries. If they had
been examined by more intelligent eyes, and if the accounts of them had been reported
by more faithful witnesses, they would not, perhaps, appear to be so wonderful. The
account which Bernier gives of some works of this kind in Indostan, falls very short of
what had been reported of them by other travellers, more disposed to the marvellous
than he was. It may too, perhaps, be in those countries, as it is in France, where the great
roads, the great communications, which are likely to be the subjects of conversation
at the court and in the capital, are attended to, and all the rest neglected. In China,
besides, in Indostan, and in several other governments of Asia, the revenue of the
sovereign arises almost altogether from a land tax or land rent, which rises or falls with
the rise and fall of the annual produce of the land. The great interest of the sovereign,
therefore, his revenue, is in such countries necessarily and immediately connected with
the cultivation of the land, with the greatness of its produce, and with the value of its
produce. But in order to render that produce both as great and as valuable as possible,
it is necessary to procure to it as extensive a market as possible, and consequently to
establish the freest, the easiest, and the least expensive communication between all the
different parts of the country; which can be done only by means of the best roads and
the best navigable canals. But the revenue of the sovereign does not, in any part of
Europe, arise chiefly from a land tax or land rent. In all the great kingdoms of Europe,
perhaps, the greater part of it may ultimately depend upon the produce of the land:
but that dependency is neither so immediate nor so evident. In Europe, therefore, the
sovereign does not feel himself so directly called upon to promote the increase, both
in quantity and value of the produce of the land, or, by maintaining good roads and
canals, to provide the most extensive market for that produce. Though it should be
true, therefore, what I apprehend is not a little doubtful, that in some parts of Asia this
department of the public police is very properly managed by the executive power, there
is not the least probability that, during the present state of things, it could be tolerably
managed by that power in any part of Europe.

Even those public works, which are of such a nature that they cannot afford any
revenue for maintaining themselves, but of which the conveniency is nearly confined
to some particular place or district, are always better maintained by a local or provincial
revenue, under the management of a local and provincial administration, than by

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the general revenue of the state, of which the executive power must always have the
management. Were the streets of London to be lighted and paved at the expense of the
treasury, is there any probability that they would be so well lighted and paved as they
are at present, or even at so small an expense? The expense, besides, instead of being
raised by a local tax upon the inhabitants of each particular street, parish, or district in
London, would, in this case, be defrayed out of the general revenue of the state, and
would consequently be raised by a tax upon all the inhabitants of the kinedom, of
whom the greater part derive no sort of benefit from the lighting and paving of the
streets of London.

The abuses which sometimes creep into the local and provincial administration of
a local and provincial revenue, how enormous soever they may appear, are in reality,
however, almost always very trifling in comparison of those which commonly take
place in the administration and expenditure of the revenue of a great empire. They
are, besides, much more easily corrected. Under the local or provincial administration
of the justices of the peace in Great Britain, the six days labour which the country
people are obliged to give to the reparation of the highways, is not always, perhaps,
very judiciously applied, but it is scarce ever exacted with any circumstance of cruelty
or oppression. In France, under the administration of the intendants, the application is
not always more judicious, and the exaction is frequently the most cruel and oppressive.
Such corvees, as they are called, make one of the principal instruments of tyranny by
which those officers chastise any parish or communeaute, which has had the misfortune
to fall under their displeasure.

Of the public Works and Institution which are necessary for facilitating particular
Branches of Commetce.

The object of the public works and institutions above mentioned, is to facilitate
commetce in general. But in order to facilitate some particular branches of it, particular
institutions are necessary, which again require a particular and extraordinary expense.

Some particular branches of commerce which are carried on with barbarous and
uncivilized nations, require extraordinary protection. An ordinary store or counting-
house could give little security to the goods of the merchants who trade to the western
coast of Africa: To defend them from the barbarous natives, it is necessary that the
place where they are deposited should be in some measure fortified. The disorders
in the government of Indostan have been supposed to render a like precaution
necessaty, even among that mild and gentle people; and it was under pretence of
securing their persons and property from violence, that both the English and French
East India companies were allowed to erect the first forts which they possessed in that
country. Among other nations, whose vigorous government will suffer no strangers
to possess any fortified place within their territory, it may be necessary to maintain
some ambassador, minister, or consul, who may both decide, according to their own
customs, the differences arising among his own countrymen, and, in their disputes with
the natives, may by means of his public character, interfere with more authority and
afford them a more powerful protection than they could expect from any private man.

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THE WEALTH OF NATIONS

The interests of commerce have frequently made it necessary to maintain ministers in
foreign countries, where the purposes either of war or alliance would not have required
any. The commerce of the Turkey company first occasioned the establishment of an
ordinary ambassador at Constantinople. The first English embassies to Russia arose
altogether from commercial interests. The constant interference with those interests,
necessarily occasioned between the subjects of the different states of Europe, has
probably introduced the custom of keeping, in all neighbouring countries, ambassadors
ot ministers constantly resident, even in the time of peace. This custom, unknown to
ancient times, seems not to be older than the end of the fifteenth, or beginning of the
sixteenth century; that is, than the time when commerce first began to extend itself to
the greater part of the nations of Europe, and when they first began to attend to its
interests.

It seems not unreasonable, that the extraordinary expense which the protection of
any particular branch of commerce may occasion, should be defrayed by a moderate
tax upon that particular branch; by a moderate fine, for example, to be paid by the
traders when they first enter into it; or, what is more equal, by a particular duty of so
much per cent. upon the goods which they either import into, or export out of, the
particular countries with which it is carried on. The protection of trade, in general,
from pirates and freebooters, is said to have given occasion to the first institution of
the duties of customs. But, if it was thought reasonable to lay a general tax upon trade,
in order to defray the expense of protecting trade in general, it should seem equally
reasonable to lay a particular tax upon a particular branch of trade, in order to defray
the extraordinary expense of protecting that branch.

The protection of trade, in general, has always been considered as essential to the
defence of the commonwealth, and, upon that account, a necessary part of the duty of
the executive power. The collection and application of the general duties of customs,
therefore, have always been left to that power. But the protection of any particular
branch of trade is a part of the general protection of trade; a part, therefore, of the
duty of that power; and if nations always acted consistently, the particular duties levied
for the purposes of such particular protection, should always have been left equally to
its disposal. But in this respect, as well as in many others, nations have not always acted
consistently; and in the greater part of the commercial states of Europe, particular
companies of merchants have had the address to persuade the legislature to entrust to
them the performance of this part of the duty of the sovereign, together with all the
powers which are necessarily connected with it.

These companies, though they may, perhaps, have been useful for the first
introduction of some branches of commerce, by making, at their own expense, an
experiment which the state might not think it prudent to make, have in the long-run
proved, universally, either burdensome or useless, and have either mismanaged or
confined the trade.

When those companies do not trade upon a joint stock, but are obliged to admit
any person, properly qualified, upon paying a certain fine, and agreeing to submit to

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the regulations of the company, each member trading upon his own stock, and at his
own tisk, they are called regulated companies. When they trade upon a joint stock,
each member sharing in the common profit or loss, in proportion to his share in this
stock, they are called joint-stock companies. Such companies, whether regulated or
joint-stock, sometimes have, and sometimes have not, exclusive privileges.

Regulated companies resemble, in every respect, the corporation of trades, so
common in the cities and towns of all the different countries of Europe; and are a sort
of enlarged monopolies of the same kind. As no inhabitant of a town can exercise
an incorporated trade, without first obtaining his freedom in the incorporation, so, in
most cases, no subject of the state can lawfully carry on any branch of foreign trade,
for which a regulated company is established, without first becoming a member of that
company. The monopoly is more or less strict, according as the terms of admission
are more or less difficult, and according as the directors of the company have more
or less authority, or have it more or less in their power to manage in such a manner
as to confine the greater part of the trade to themselves and their particular friends.
In the most ancient regulated companies, the privileges of apprenticeship were the
same as in other corporations, and entitled the person who had served his time to a
member of the company, to become himself a member, either without paying any
fine, or upon paying a much smaller one than what was exacted of other people. The
usual corporation spirit, wherever the law does not restrain it, prevails in all regulated
companies. When they have been allowed to act according to their natural genius, they
have always, in order to confine the competition to as small a number of persons as
possible, endeavoured to subject the trade to many burdensome regulations. When
the law has restrained them from doing this, they have become altogether useless and
insignificant.

The regulated companies for foreign commerce which at present subsist in Great
Britain, are the ancient merchant-adventurers company, now commonly called the
Hamburgh company, the Russia company, the Eastland company, the Turkey company,
and the African company.

The terms of admission into the Hamburgh company are now said to be quite
easy; and the directors either have it not in their power to subject the trade to any
troublesome restraint or regulations, or, at least, have not of late exercised that power.
It has not always been so. About the middle of the last century, the fine for admission
was fifty, and at one time one hundred pounds, and the conduct of the company was
said to be extremely oppressive. In 1643, in 1645, and in 1661, the clothiers and free
traders of the west of England complained of them to parliament, as of monopolists,
who confined the trade, and oppressed the manufactures of the country. Though those
complaints produced no act of parliament, they had probably intimidated the company
so far, as to oblige them to reform their conduct. Since that time, at least, there have
been no complaints against them. By the 10th and 11th of William HI. c.6, the fine for
admission into the Russia company was reduced to five pounds; and by the 25th of
Charles II. c.7, that for admission into the Eastland company to forty shillings; while,

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THE WEALTH OF NATIONS

at the same time, Sweden, Denmark, and Norway, all the countries on the north side of
the Baltic, were exempted from their exclusive charter. The conduct of those companies
had probably given occasion to those two acts of parliament. Before that time, Sir
Josiah Child had represented both these and the Hamburgh company as extremely
oppressive, and imputed to their bad management the low state of the trade, which we
at that time carried on to the countries comprehended within their respective charters.
But though such companies may not, in the present times, be very oppressive, they
are certainly altogether useless. To be merely useless, indeed, is perhaps, the highest
eulogy which can ever justly be bestowed upon a regulated company; and all the three
companies above mentioned seem, in their present state, to deserve this eulogy.

The fine for admission into the Turkey company was formerly twenty-five pounds
for all persons under twenty-six years of age, and fifty pounds for all persons above
that age. Nobody but mere merchants could be admitted; a restriction which excluded
all shop-keepers and retailers. By a bye-law, no British manufactures could be exported
to Turkey but in the general ships of the company; and as those ships sailed always
from the port of London, this restriction confined the trade to that expensive port,
and the traders to those who lived in London and in its neighbourhood. By another
bye-law, no person living within twenty miles of London, and not free of the city, could
be admitted a member; another restriction which, joined to the foregoing, necessarily
excluded all but the freemen of London. As the time for the loading and sailing of
those general ships depended altogether upon the directors, they could easily fill them
with their own goods, and those of their particular friends, to the exclusion of others,
who, they might pretend, had made their proposals too late. In this state of things,
therefore, this company was, in every respect, a strict and oppressive monopoly. Those
abuses gave occasion to the act of the 26th of George II. c. 18, reducing the fine for
admission to twenty pounds for all persons, without any distinction of ages, or any
restriction, either to mere merchants, or to the freemen of London; and granting to all
such persons the liberty of exporting, from all the ports of Great Britain, to any port
in Turkey, all British goods, of which the exportation was not prohibited, upon paying
both the general duties of customs, and the particular duties assessed for defraying the
necessary expenses of the company; and submitting, at the same time, to the lawful
authority of the British ambassador and consuls resident in Turkey, and to the bye-
laws of the company duly enacted. To prevent any oppression by those bye-laws, it
was by the same act ordained, that if any seven members of the company conceived
themselves aggrieved by any bye-law which should be enacted after the passing of this
act, they might appeal to the board of trade and plantations (to the authority of which a
committee of the privy council has now succeeded), provided such appeal was brought
within twelve months after the bye-law was enacted; and that, if any seven members
conceived themselves aggrieved by any bye-law which had been enacted before the
passing of this act, they might bring a like appeal, provided it was within twelve months
after the day on which this act was to take place. The experience of one year, however,
may not always be sufficient to discover to all the members of a great company the

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pernicious tendency of a particular bye-law; and if several of them should afterwards
discover it, neither the board of trade, nor the committee of council, can afford them
any redress. The object, besides, of the greater part of the bye-laws of all regulated
companies, as well as of all other corporations, is not so much to oppress those who
are already members, as to discourage others from becoming so; which may be done,
not only by a high fine, but by many other contrivances. The constant view of such
companies is always to raise the rate of their own profit as high as they can; to keep
the market, both for the goods which they export, and for those which they import, as
much understocked as they can; which can be done only by restraining the competition,
or by discouraging new adventurers from entering into the trade. A fine, even of twenty
pounds, besides, though it may not, perhaps, be sufficient to discourage any man from
entering into the Turkey trade, with an intention to continue in it, may be enough to
discourage a speculative merchant from hazarding a single adventure in it. In all trades,
the regular established traders, even though not incorporated, naturally combine to raise
profits, which are noway so likely to be kept, at all times, down to their proper level, as
by the occasional competition of speculative adventurers. The Turkey trade, though in
some measure laid open by this act of parliament, is still considered by many people
as very far from being altogether free. The Turkey company contribute to maintain
an ambassador and two or three consuls, who, like other public ministers, ought to be
maintained altogether by the state, and the trade laid open to all his majesty’s subjects.
The different taxes levied by the company, for this and other corporation purposes,
might afford a revenue much more than sufficient to enable a state to maintain such
ministers.

Regulated companies, it was observed by Sir Josiah Child, though they had
frequently supported public ministers, had never maintained any forts or garrisons in
the countries to which they traded; whereas joint-stock companies frequently had. And,
in reality, the former seem to be much more unfit for this sort of service than the latter.
First, the directors of a regulated company have no particular interest in the prosperity
of the general trade of the company, for the sake of which such forts and garrisons
are maintained. The decay of that general trade may even frequently contribute to
the advantage of their own private trade; as, by diminishing the number of their
competitors, it may enable them both to buy cheaper, and to sell dearer. The directors
of a joint-stock company, on the contrary, having only their share in the profits which
ate made upon the common stock committed to their management, have no private
trade of their own, of which the interest can be separated from that of the general trade
of the company. Their private interest is connected with the prosperity of the general
trade of the company, and with the maintenance of the forts and garrisons which are
necessary for its defence. They are more likely, therefore, to have that continual and
careful attention which that maintenance necessarily requires. Secondly, The directors
of a joint-stock company have always the management of a large capital, the joint stock
of the company, a part of which they may frequently employ, with propriety, in building,
repairing, and maintaining such necessary forts and garrisons. But the directors of a

5D0

THE WEALTH OF NATIONS

regulated company, having the management of no common capital, have no other
fund to employ in this way, but the casual revenue arising from the admission fines,
and from the corporation duties imposed upon the trade of the company. Though
they had the same interest, therefore, to attend to the maintenance of such forts and
garrisons, they can seldom have the same ability to render that attention effectual. ‘The
maintenance of a public minister, requiring scarce any attention, and but a moderate
and limited expense, is a business much more suitable both to the temper and abilities
of a regulated company.

Long after the time of Sir Josiah Child, however, in 1750, a regulated company was
established, the present company of merchants trading to Africa; which was expressly
charged at first with the maintenance of all the British forts and garrisons that lie
between Cape Blanc and the Cape of Good Hope, and afterwards with that of those
only which lie between Cape Rouge and the Cape of Good Hope. The act which
establishes this company (the 23rd of George I. c.51 ), seems to have had two distinct
objects in view; first, to restrain effectually the oppressive and monopolizing spirit
which is natural to the directors of a regulated company; and, secondly, to force them,
as much as possible, to give an attention, which is not natural to them, towards the
maintenance of forts and garrisons.

For the first of these purposes, the fine for admission is limited to forty shillings.
The company is prohibited from trading in their corporate capacity, or upon a joint
stock; from borrowing money upon common seal, or from laying any restraints upon
the trade, which may be carried on freely from all places, and by all persons being
British subjects, and paying the fine. The government is in a committee of nine persons,
who meet at London, but who are chosen annually by the freemen of the company
at London, Bristol, and Liverpool; three from each place. No committeeman can be
continued in office for more than three years together. Any committee-man might be
removed by the board of trade and plantations, now by a committee of council, after
being heard in his own defence. The committee are forbid to export negroes from
Africa, ot to import any African goods into Great Britain. But as they are charged with
the maintenance of forts and garrisons, they may, for that purpose export from Great
Britain to Africa goods and stores of different kinds. Out of the moneys which they
shall receive from the company, they are allowed a sum, not exceeding eight hundred
pounds, for the salaries of their clerks and agents at London, Bristol, and Liverpool,
the house-rent of their offices at London, and all other expenses of management,
commission, and agency, in England. What remains of this sum, after defraying these
different expenses, they may divide among themselves, as compensation for their
trouble, in what manner they think proper. By this constitution, it might have been
expected, that the spirit of monopoly would have been effectually restrained, and the
first of these purposes sufficiently answered. It would seem, however, that it had not.
Though by the 4th of George II. c.20, the fort of Senegal, with all its dependencies,
had been invested in the company of merchants trading to Africa, yet, in the year
following (by the 5th of George HL. c.44), not only Senegal and its dependencies,

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ADAM SMITH

but the whole coast, from the port of Sallee, in South Barbary, to Cape Rouge, was
exempted from the jurisdiction of that company, was vested in the crown, and the
trade to it declared free to all his majesty’s subjects. The company had been suspected
of restraining the trade and of establishing some sort of improper monopoly. It is not,
however, very easy to conceive how, under the regulations of the 23d George II. they
could do so. In the printed debates of the house of commons, not always the most
authentic records of truth, I observe, however, that they have been accused of this.
The members of the committee of nine being all merchants, and the governors and
factors in their different forts and settlements being all dependent upon them, it is not
unlikely that the latter might have given peculiar attention to the consignments and
commissions of the former, which would establish a real monopoly.

For the second of these purposes, the maintenance of the forts and garrisons, an
annual sum has been allotted to them by parliament, generally about £13,000. For the
proper application of this sum, the committee is obliged to account annually to the
cursitor baron of exchequer; which account is afterwards to be laid before parliament.
But parliament, which gives so little attention to the application of millions, is not
likely to give much to that of £13,000 a-year; and the cursitor baron of exchequer,
from his profession and education, is not likely to be profoundly skilled in the proper
expense of forts and garrisons. The captains of his majesty’s navy, indeed, or any
other commissioned officers, appointed by the board of admiralty, may inquire into the
condition of the forts and garrisons, and report their observations to that board. But
that board seems to have no direct jurisdiction over the committee, nor any authority
to correct those whose conduct it may thus inquire into; and the captains of his
majesty’s navy, besides, are not supposed to be always deeply learned in the science of
fortification. Removal from an office, which can be enjoyed only for the term of three
years, and of which the lawful emoluments, even during that term, are so very small,
seems to be the utmost punishment to which any committee-man is liable, for any fault,
except direct malversation, or embezzlement, either of the public money, or of that
of the company; and the fear of the punishment can never be a motive of sufficient
weight to force a continual and careful attention to a business to which he has no other
interest to attend. The committee are accused of having sent out bricks and stones from
England for the reparation of Cape Coast Castle, on the coast of Guinea; a business
for which parliament had several times granted an extraordinary sum of money. These
bricks and stones, too, which had thus been sent upon so long a voyage, were said to
have been of so bad a quality, that it was necessary to rebuild, from the foundation,
the walls which had been repaired with them. The forts and garrisons which lie north
of Cape Rouge, are not only maintained at the expense of the state, but are under the
immediate government of the executive power; and why those which lie south of that
cape, and which, too, are, in part at least, maintained at the expense of the state, should
be under a different government, it seems not very easy even to imagine a good reason.
The protection of the Mediterranean trade was the original purpose or pretence of the
garrisons of Gibraltar and Minorca; and the maintenance and government of those

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THE WEALTH OF NATIONS

garrisons have always been, very properly, committed, not to the Turkey company, but
to the executive power. In the extent of its dominion consists, in a great measure, the
pride and dignity of that power; and it is not very likely to fail in attention to what is
necessary for the defence of that dominion. The garrisons at Gibraltar and Minorca,
accordingly, have never been neglected. Though Minorca has been twice taken, and
is now probably lost for ever, that disaster has never been imputed to any neglect in
the executive power. I would not, however, be understood to insinuate, that either
of those expensive garrisons was ever, even in the smallest degree, necessary for the
purpose for which they were originally dismembered from the Spanish monarchy. That
dismemberment, perhaps, never served any other real purpose than to alienate from
England her natural ally the king of Spain, and to unite the two principal branches of
the house of Bourbon in a much stricter and more permanent alliance than the ties of
blood could ever have united them.

Joint-stock companies, established either by royal charter, or by act of parliament,
are different in several respects, not only from regulated companies, but from private
copartneries.

First, In a private copartnery, no partner without the consent of the company, can
transfer his share to another person, or introduce a new member into the company.
Each member, however, may, upon proper warning, withdraw from the copartnery,
and demand payment from them of his share of the common stock. In a joint-stock
company, on the contrary, no member can demand payment of his share from the
company; but each member can, without their consent, transfer his share to another
person, and thereby introduce a new member. The value of a share in a joint stock is
always the price which it will bring in the market; and this may be either greater or less
in any proportion, than the sum which its owner stands credited for in the stock of the
company.

Secondly, In a private copartnery, each partner is bound for the debts contracted
by the company, to the whole extent of his fortune. In a joint-stock company, on the
contrary, each partner is bound only to the extent of his share.

The trade of a joint-stock company is always managed by a court of directors. This
court, indeed, is frequently subject, in many respects, to the control of a general court
of proprietors. But the greater part of these proprietors seldom pretend to understand
any thing of the business of the company; and when the spirit of faction happens not
to prevail among them, give themselves no trouble about it, but receive contentedly
such halfyearly or yearly dividend as the directors think proper to make to them. This
total exemption front trouble and front risk, beyond a limited sum, encourages many
people to become adventurers in joint-stock companies, who would, upon no account,
hazard their fortunes in any private copartnery. Such companies, therefore, commonly
draw to themselves much greater stocks, than any private copartnery can boast of.
The trading stock of the South Sea company at one time amounted to upwards of
thirty-three millions eight hundred thousand pounds. The divided capital of the Bank
of England amounts, at present, to ten millions seven hundred and eighty thousand

536

ADAM SMITH

pounds. The directors of such companies, however, being the managers rather of other
people’s money than of their own, it cannot well be expected that they should watch
overt it with the same anxious vigilance with which the partners in a private copartnery
frequently watch over their own. Like the stewards of a rich man, they are apt to
consider attention to small matters as not for their master’s honour, and very easily give
themselves a dispensation from having it. Negligence and profusion, therefore, must
always prevail, more ot less, in the management of the affairs of such a company. It is
upon this account, that joint-stock companies for foreign trade have seldom been able
to maintain the competition against private adventurers. They have, accordingly, very
seldom succeeded without an exclusive privilege; and frequently have not succeeded
with one. Without an exclusive privilege, they have commonly mismanaged the trade.
With an exclusive privilege, they have both mismanaged and confined it.

The Royal African company, the predecessors of the present African company, had
an exclusive privilege by charter; but as that charter had not been confirmed by act of
parliament, the trade, in consequence of the declaration of rights, was, soon after the
Revolution, laid open to all his majesty’s subjects. The Hudson’s Bay company are, as
to their legal rights, in the same situation as the Royal African company. Their exclusive
charter has not been confirmed by act of parliament. The South Sea company, as long
as they continued to be a trading company, had an exclusive privilege confirmed by act
of parliament; as have likewise the present united company of merchants trading to
the East Indies.

The Royal African company soon found that they could not maintain the
competition against private adventurers, whom, notwithstanding the declaration of
rights, they continued for some time to call interlopers, and to persecute as such. In
1698, however, the private adventurers were subjected to a duty of ten per cent. upon
almost all the different branches of their trade, to be employed by the company in
the maintenance of their forts and garrisons. But, notwithstanding this heavy tax, the
company were still unable to maintain the competition. Their stock and credit gradually
declined. In 1712, their debts had become so great, that a particular act of parliament
was thought necessary, both for their security and for that of their creditors. It was
enacted, that the resolution of two-thirds of these creditors in number and value should
bind the rust, both with regard to the time which should be allowed to the company
for the payment of their debts, and with regard to any other agreement which it might
be thought proper to make with them concerning those debts. In 1730, their affairs
were in so great disorder, that they were altogether incapable of maintaining their forts
and garrisons, the sole purpose and pretext of their institution. From that year till
their final dissolution, the parliament judged it necessary to allow the annual sum of
£10,000 for that purpose. In 1732, after having been for many years losers by the trade
of carrying negroes to the West Indies, they at last resolved to give it up altogether,
to sell to the private traders to America the negroes which they purchased upon the
coast; awl to employ their servants in a trade to the inland parts of Africa for gold dust,
elephants teeth, dyeing drugs, etc. But their success in this more confined trade was

Dov

not greater than in their former extensive one. Their affairs continued to go gradually
to decline, till at last, being in every respect a bankrupt company, they were dissolved
by act of parliament, and their forts and garrisons vested in the present regulated
company of merchants trading to Africa. Before the erection of the Royal African
company, there had been three other joint-stock companies successively established,
one after another, for the African trade. They were all equally unsuccessful. They all,
however, had exclusive charters, which, though not confirmed by act of parliament,
were in those days supposed to convey a real exclusive privilege.

The Hudson’s Bay company, before their misfortunes in the late war, had been
much more fortunate than the Royal African company. Their necessary expense is
much smaller. The whole number of people whom they maintain in their different
settlements and habitations, which they have honoured with the name of forts, is said
not to exceed a hundred and twenty persons. This number, however, is sufficient to
ptepare beforehand the cargo of furs and other goods necessary for loading their ships,
which, on account of the ice, can seldom remain above six or eight weeks in those
seas. This advantage of having a cargo ready prepared, could not, for several years,
be acquired by private adventurers; and without it there seems to be no possibility
of trading to Hudson’s Bay. The moderate capital of the company, which, it is said,
does not exceed one hundred and ten thousand pounds, may, besides, be sufficient to
enable them to engross the whole, or almost the whole trade and surplus produce, of
the miserable though extensive country comprehended within their charter. No private
adventurers, accordingly, have ever attempted to trade to that country in competition
with them. This company, therefore, have always enjoyed an exclusive trade, in fact,
though they may have no right to it in law. Over and above all this, the moderate capital
of this company is said to be divided among a very small number of proprietors. But
a joint-stock company, consisting of a small number of proprietors, with a moderate
capital, approaches very nearly to the nature of a private copartnery, and may be capable
of nearly the same degree of vigilance and attention. It is not to be wondered at,
therefore, if, in consequence of these different advantages, the Hudson’s Bay company
had, before the late war, been able to carry on their trade with a considerable degree
of success. It does not seem probable, however, that their profits ever approached
to what the late Mr Dobbs imagined them. A much more sober and judicious writer,
Mr Anderson, author of the Historical and Chronological Deduction of Commerce,
very justly observes, that upon examining the accounts which Mr Dobbs himself has
given for several years together, of their exports and imports, and upon making proper
allowances for their extraordinary risk and expense, it does not appear that their profits
deserve to be envied, or that they can much, if at all, exceed the ordinary profits of
trade.

The South Sea company never had any forts or garrisons to maintain, and therefore
were entirely exempted from one great expense, to which other joint-stock companies
for foreign trade are subject; but they had an immense capital divided among an
immense number of proprietors. It was naturally to be expected, therefore, that folly,

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ADAM SMITH

negligence, and profusion, should prevail in the whole management of their affairs.
The knavery and extravagance of their stock-jobbing projects are sufficiently known,
and the explication of them would be foreign to the present subject. Their mercantile
projects were not much better conducted. The first trade which they engaged in, was
that of supplying the Spanish West Indies with negroes, of which (in consequence of
what was called the Assiento Contract granted them by the treaty of Utrecht) they had
the exclusive privilege. But as it was not expected that much profit could be made by
this trade, both the Portuguese and French companies, who had enjoyed it upon the
same terms before them, having been ruined by it, they were allowed, as compensation,
to send annually a ship of a certain burden, to trade directly to the Spanish West Indies.
Of the ten voyages which this annual ship was allowed to make, they are said to have
gained considerably by one, that of the Royal Caroline, in 1731; and to have been losers,
mote or less, by almost all the rest. Their ill success was imputed, by their factors and
agents, to the extortion and oppression of the Spanish government; but was, perhaps,
principally owing to the profusion and depredations of those very factors and agents;
some of whom ate said to have acquired great fortunes, even in one year. In 1734, the
company petitioned the king, that they might be allowed to dispose of the trade and
tonnage of their annual ship, on account of the little profit which they made by it, and
to accept of such equivalent as they could obtain from the king of Spain.

In 1724, this company had undertaken the whale fishery. Of this, indeed, they had
no monopoly; but as long as they carried it on, no other British subjects appear to have
engaged in it. Of the eight voyages which their ships made to Greenland, they were
gainers by one, and losers by all the rest. After their eighth and last voyage, when they
had sold their ships, stores, and utensils, they found that their whole loss upon this
branch, capital and interest included, amounted to upwards of £237,000.

In 1722, this company petitioned the parliament to be allowed to divide their
immense capital of more than thirty-three millions eight hundred thousand pounds,
the whole of which had been lent to government, into two equal parts; the one half,
or upwards of £16,900,000, to be put upon the same footing with other government
annuities, and not to be subject to the debts contracted, or losses incurred, by the
directors of the company, in the prosecution of their mercantile projects; the other
half to remain as before, a trading stock, and to be subject to those debts and losses.
The petition was too reasonable not to be granted. In 1733, they again petitioned the
parliament, that three-fourths of their trading stock might be turned into annuity stock,
and only one-fourth remain as trading stock, or exposed to the hazards arising from
the bad management of their directors. Both their annuity and trading stocks had, by
this time, been reduced more than two millions each, by several different payments
from government; so that this fourth amounted only to £3,662,784:8:6. In 1748, all
the demands of the company upon the king of Spain, in consequence of the assiento
contract, were, by the treaty of Aix-la~Chapelle, given up for what was supposed an
equivalent. An end was put to their trade with the Spanish West Indies; the remainder
of their trading stock was turned into an annuity stock; and the company ceased, in

539

THE WEALTH OF NATIONS

every respect, to be a trading company.

It ought to be observed, that in the trade which the South Sea company carried on
by means of their annual ship, the only trade by which it ever was expected that they
could make any considerable profit, they were not without competitors, either in the
foreign or in the home market. At Carthagena, Porto Bello, and La Vera Cruz, they had
to encounter the competition of the Spanish merchants, who brought from Cadiz to
those markets European goods, of the same kind with the outward cargo of their ship;
and in England they had to encounter that of the English merchants, who imported
from Cadiz goods of the Spanish West Indies, of the same kind with the inward cargo.
The goods, both of the Spanish and English merchants, indeed, were, perhaps, subject
to higher duties. But the loss occasioned by the negligence, profusion, and malversation
of the servants of the company, had probably been a tax much heavier than all those
duties. That a joint-stock company should be able to carry on successfully any branch
of foreign trade, when private adventurers can come into any sort of open and fair
competition with them, seems contrary to all experience.

The old English East India company was established in 1600, by a charter from
Queen Elizabeth. In the first twelve voyages which they fitted out for India, they appear
to have traded as a regulated company, with separate stocks, though only in the general
ships of the company. In 1612, they united into a joint stock. Their charter was exclusive,
and, though not confirmed by act of parliament, was in those days supposed to convey
a real exclusive privilege. For many years, therefore, they were not much disturbed by
interlopers. Their capital, which never exceeded £744,000, and of which £50 was a
share, was not so exorbitant, nor their dealings so extensive, as to afford either a pretext
for gross negligence and profusion, or a cover to gross malversation. Notwithstanding
some extraordinary losses, occasioned partly by the malice of the Dutch East India
company, and partly by other accidents, they carried on for many years a successful
trade. But in process of time, when the principles of liberty were better understood, it
became every day more and more doubtful, how far a royal charter, not confirmed by
act of parliament, could convey an exclusive privilege. Upon this question the decisions
of the courts of justice were not uniform, but varied with the authority of government,
and the humours of the times. Interlopers multiplied upon them; and towards the end
of the reign of Charles II., through the whole of that of James H., and during a part
of that of William HI., reduced them to great distress. In 1698, a proposal was made to
parliament, of advancing two millions to government, at eight per cent. provided the
subscribers were erected into a new Hast India company, with exclusive privileges. The
old East India company offered seven hundred thousand pounds, nearly the amount of
their capital, at four per cent. upon the same conditions. But such was at that time the
state of public credit, that it was more convenient for government to borrow two
millions at eight per cent. than seven hundred thousand pounds at four. The proposal
of the new subscribers was accepted, and a new East India company established in
consequence. The old East India company, however, had a right to continue their trade
till 1701. They had, at the same time, in the name of their treasurer, subscribed very

540

ADAM SMITH

artfully three hundred and fifteen thousand pounds into the stock of the new. By a
negligence in the expression of the act of parliament, which vested the East India trade
in the subscribers to this loan of two millions, it did not appear evident that they were
all obliged to unite into a joint stock. A few private traders, whose subscriptions
amounted only to seven thousand two hundred pounds, insisted upon the privilege of
trading separately upon their own stocks, and at their own risks. The old East India
company had a right to a separate trade upon their own stock till 1701; and they had
likewise, both before and after that period, a right, like that or other private traders, to
a separate trade upon the £315,000, which they had subscribed into the stock of the
new company. The competition of the two companies with the private traders, and
with one another, is said to have well nigh ruined both. Upon a subsequent occasion,
in 1750, when a proposal was made to parliament for putting the trade under the
management of a regulated company, and thereby laying it in some measure open, the
East India company, in opposition to this proposal, represented, in very strong terms,
what had been, at this time, the miserable effects, as they thought them, of this
competition. In India, they said, it raised the price of goods so high, that they were not
worth the buying; and in England, by overstocking the market, it sunk their price so
low, that no profit could be made by them. That by a more plentiful supply, to the great
advantage and conveniency of the public, it must have reduced very much the price of
India goods in the English market, cannot well be doubted; but that it should have
taised very much their price in the Indian market, seems not very probable, as all the
extraordinary demand which that competition could occasion must have been but as a
drop of water in the immense ocean of Indian commerce. The increase of demand,
besides, though in the beginning it may sometimes raise the price of goods, never fails
to lower it in the long-run. It encourages production, and thereby increases the
competition of the producers, who, in order to undersell one another, have recourse to
new divisions or labour and new improvements of art, which might never otherwise
have been thought of. The miserable effects of which the company complained, were
the cheapness of consumption, and the encouragement given to production; precisely
the two effects which it is the great business of political economy to promote. The
competition, however, of which they gave this doleful account, had not been allowed
to be of long continuance. In 1702, the two companies were, in some measure, united
by an indenture tripartite, to which the queen was the third party; and in 1708, they
were by act of parliament, perfectly consolidated into one company, by their present
name of the United Company of Merchants trading to the East Indies. Into this act it
was thought worth while to insert a clause, allowing the separate traders to continue
their trade till Michaelmas 1711; but at the same time empowering the directors, upon
three years notice, to redeem their little capital of seven thousand two hundred pounds,
and thereby to convert the whole stock of the company into a joint stock. By the same
act, the capital of the company, in consequence of a new loan to government, was
augmented from two millions to three millions two hundred thousand pounds. In 1743,
the company advanced another million to government. But this million being raised,

541

THE WEALTH OF NATIONS

not by a call upon the proprietors, but by selling annuities and contracting bond-debts,
it did not augment the stock upon which the proprietors could claim a dividend. It
augmented, however, their trading stock, it being equally liable with the other three
millions two hundred thousand pounds, to the losses sustained, and debts contracted
by the company in prosecution of their mercantile projects. From 1708, or at least from
1711, this company, being delivered from all competitors, and fully established in the
monopoly of the English commerce to the East Indies, carried on a successful trade,
and from their profits, made annually a moderate dividend to their proprietors. During
the French war, which began in 1741, the ambition of Mr. Dupleix, the French governor
of Pondicherry, involved them in the wars of the Carnatic, and in the politics of the
Indian princes. After many signal successes, and equally signal losses, they at last lost
Madras, at that time their principal settlement in India. It was restored to them by the
treaty of Aix-la-Chapelle; and, about this time the spirit of war and conquest seems to
have taken possession of their servants in India, and never since to have left them.
During the French war, which began in 1755, their arms partook of the general good
fortune of those of Great Britain. They defended Madras, took Pondicherry, recovered
Calcutta, and acquired the revenues of a rich and extensive territory, amounting, it was
then said, to upwards of three millions a-year. They remained for several years in quiet
possession of this revenue; but in 1767, administration laid claim to their territorial
acquisitions, and the revenue arising from them, as of right belonging to the crown; and
the company, in compensation for this claim, agreed to pay to government £400,000
a-yeat. They had, before this, gradually augmented their dividend from about six to ten
per cent.; that is, upon their capital of three millions two hundred thousand pounds,
they had increased it by £128,000, or had raised it from one hundred and ninety-two
thousand to three hundred and twenty thousand pounds a-year. They were attempting
about this time to raise it still further, to twelve and a-half per cent., which would have
made their annual payments to theit proprietors equal to what they had agreed to pay
annually to government, or to £400,000 a-year. But during the two years in which their
agreement with government was to take place, they were restrained from any further
increase of dividend by two successive acts of parliament, of which the object was to
enable them to make a speedier progress in the payment of their debts, which were at
this time estimated at upwards of six or seven millions sterling. In 1769, they renewed
their agreement with government for five years more, and stipulated, that during the
course of that period, they should be allowed gradually to increase their dividend to
twelve and a-half per cent; never increasing it, however, more than one per cent. in one
year. This increase of dividend, therefore, when it had risen to its utmost height, could
augment their annual payments, to their proprietors and government together, but by
£680,000, beyond what they had been before their late territorial acquisitions. What the
gross revenue of those territorial acquisitions was supposed to amount to, has already
been mentioned; and by an account brought by the Cruttenden East Indiaman in 1769,
the neat revenue, clear of all deductions and military charges, was stated at two millions
forty-eight thousand seven hundred and forty-seven pounds. They were said, at the

542

ADAM SMITH

same time, to possess another revenue, arising partly from lands, but chiefly from the
customs established at their different settlements, amounting to £439,000. The profits
of their trade, too, according to the evidence of their chairman before the house of
commons, amounted, at this time, to at least £400,000 a-year; according to that of their
accountant, to at least £500,000; according to the lowest account, at least equal to the
highest dividend that was to be paid to their proprietors. So great a revenue might
certainly have afforded an augmentation of £680,000 in their annual payments; and, at
the same time, have left a large sinking fund, sufficient for the speedy reduction of their
debt. In 1773, however, their debts, instead of being reduced, were augmented by an
arrear to the treasury in the payment of the four hundred thousand pounds; by another
to the custom-house for duties unpaid; by a large debt to the bank, for money borrowed;
and by a fourth, for bills drawn upon them from India, and wantonly accepted, to the
amount of upwards of twelve hundred thousand pounds. The distress which these
accumulated claims brought upon them, obliged them not only to reduce all at once
their dividend to six per cent. but to throw themselves upon the mercy of govermnent,
and to supplicate, first, a release from the further payment of the stipulated £400,000
a-year; and, secondly, a loan of fourteen hundred thousand, to save them from
immediate bankruptcy. The great increase of their fortune had, it seems, only served to
furnish their servants with a pretext for greater profusion, and a cover for greater
malversation, than in proportion even to that increase of fortune. The conduct of their
servants in India, and the general state of their affairs both in India and in Europe,
became the subject of a parliamentary inquiry: in consequence of which, several very
important alterations were made in the constitution of their government, both at home
and abroad. In India, their principal settlements or Madras, Bombay, and Calcutta,
which had before been altogether independent of one another, were subjected to a
governor-general, assisted by a council of four assessors, parliament assuming to itself
the first nomination of this governor and council, who were to reside at Calcutta; that
city having now become, what Madras was before, the most important of the English
settlements in India. The court of the Mayor of Calcutta, originally instituted for the
trial of mercantile causes, which arose in the city and neighbourhood, had gradually
extended its jurisdiction with the extension of the empire. It was now reduced and
confined to the original purpose of its institution. Instead of it, a new supreme court
of judicature was established, consisting of a chief justice and three judges, to be
appointed by the crown. In Europe, the qualification necessary to entitle a proprietor
to vote at their general courts was raised, from five hundred pounds, the original price
of a share in the stock of the company, to a thousand pounds. In order to vote upon
this qualification, too, it was declared necessary, that he should have possessed it, if
acquired by his own purchase, and not by inheritance, for at least one year, instead of
six months, the term requisite before. The court of twenty-four directors had before
been chosen annually; but it was now enacted, that each director should, for the future,
be chosen for four years; six of them, however, to go out of office by rotation every
year, and not be capable of being re-chosen at the election of the six new directors for

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the ensuing year. In consequence of these alterations, the courts, both of the proprietors
and directors, it was expected, would be likely to act with more dignity and steadiness
than they had usually done before. But it seems impossible, by any alterations, to render
those courts, in any respect, fit to govern, or even to share in the government of a great
empire; because the greater part of their members must always have too little interest
in the prosperity of that empire, to give any serious attention to what may promote it.
Frequently a man of great, sometimes even a man of small fortune, is willing to
purchase a thousand pounds share in India stock, merely for the influence which he
expects to aquire by a vote in the court of proprietors. It gives him a share, though not
in the plunder, yet in the appointment of the plunderers of India; the court of directors,
though they make that appointment, being necessarily more or less under the influence
of the proprietors, who not only elect those directors, but sometimes over-rule the
appointments of their servants in India. Provided he can enjoy this influence for a few
years, and thereby provide for a certain number of his friends, he frequently cares little
about the dividend, or even about the value of the stock upon which his vote is founded.
About the prosperity of the great empire, in the government of which that vote gives
him a share, he seldom cares at all. No other sovereigns ever were, or, from the nature
of things, ever could be, so perfectly indifferent about the happiness or misery of their
subjects, the improvement or waste of their dominions, the glory or disgrace of their
administration, as, from irresistible moral causes, the greater part of the proprietors of
such a mercantile company are, and necessarily must be. This indifference, too, was
mote likely to be increased than diminished by some of the new regulations which were
made in consequence of the parliamentary inquiry. By a resolution of the house of
commons, for example, it was declared, that when the £1,400,000 lent to the company
by government, should be paid, and their bond-debts be reduced to £1,500,000, they
might then, and not till then, divide eight per cent. upon their capital; and that whatever
remained of their revenues and neat profits at home should be divided into four parts;
three of them to be paid into the exchequer for the use of the public, and the fourth to
be reserved as a fund, either for the further reduction of their bond-debts, or for the
discharge of other contingent exigencies which the company might labour under. But
if the company were bad stewards and bad sovereigns, when the whole of their neat
revenue and profits belonged to themselves, and were at their own disposal, they were
surely not likely to be better when three-fourths of them were to belong to other
people, and the other fourth, though to be laid out for the benefit of the company, yet
to be so under the inspection and with the approbation of other people.

It might be more agreeable to the company, that their own servants and dependants
should have either the pleasure of wasting, or the profit of embezzling, whatever
surplus might remain, after paying the proposed dividend of eight per cent. than that
it should come into the hands of a set of people with whom those resolutions could
scarce fail to set them in some measure at variance. The interest of those servants and
dependants might so far predominate in the court of proprietors, as sometimes to
dispose it to support the authors of depredations which had been committed in direct

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violation of its own authority. With the majority of proprietors, the support even of
the authority of their own court might sometimes be a matter of less consequence than
the support of those who had set that authority at defiance.

The regulations of 1773, accordingly, did not put an end to the disorder of the
company’s government in India. Notwithstanding that, during a momentary fit of
good conduct, they had at one time collected into the treasury of Calcutta more than
£3,000,000 sterling; notwithstanding that they had afterwards extended either their
dominion or their depredations over a vast accession of some of the richest and
most fertile countries in India, all was wasted and destroyed. They found themselves
altogether unprepared to stop or resist the incursion of Hyder Ali; and in consequence
of those disorders, the company is now (1784) in greater distress than ever; and, in order
to prevent immediate bankruptcy, is once more reduced to supplicate the assistance of
government. Different plans have been proposed by the different parties in parliament
for the better management of its affairs; and all those plans seem to agree in supposing,
what was indeed always abundantly evident, that it is altogether unfit to govern its
territorial possessions. Even the company itself seems to be convinced of its own
incapacity so far, and seems, upon that account willing to give them up to government.

With the right of possessing forts and garrisons in distant and barbarous countries
is necessarily connected the right of making peace and war in those countries. The
joint-stock companies, which have had the one right, have constantly exercised the
other, and have frequently had it expressly conferred upon them. How unjustly, how
capriciously, how cruelly, they have commonly exercised it, is too well known from
recent experience.

When a company of merchants undertake, at their own risk and expense, to establish
a new trade with some remote and barbarous nation, it may not be unreasonable to
incorporate them into a joint-stock company, and to grant them, in case of their
success, a monopoly of the trade for a certain number of years. It is the easiest and
most natural way in which the state can recompense them for hazarding a dangerous
and expensive experiment, of which the public is afterwards to reap the benefit. A
temporary monopoly of this kind may be vindicated, upon the same principles upon
which a like monopoly of a new machine is granted to its inventor, and that of a new
book to its author. But upon the expiration of the term, the monopoly ought certainly
to determine; the forts and garrisons, if it was found necessary to establish any, to be
taken into the hands of government, their value to be paid to the company, and the
trade to be laid open to all the subjects of the state. By a perpetual monopoly, all the
other subjects of the state are taxed very absurdly in two different ways: first, by the
high price of goods, which, in the case of a free trade, they could buy much cheaper;
and, secondly, by their total exclusion from a branch of business which it might be both
convenient and profitable for many of them to carry on. It is for the most worthless
of all purposes, too, that they are taxed in this manner. It is merely to enable the
company to support the negligence, profusion, and malversation of their own servants,
whose disorderly conduct seldom allows the dividend of the company to exceed the

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THE WEALTH OF NATIONS

ordinary rate of profit in trades which are altogether free, and very frequently makes
a fall even a good deal short of that rate. Without a monopoly, however, a joint-stock
company, it would appear from experience, cannot long carry on any branch of foreign
trade. To buy in one market, in order to sell with profit in another, when there are
many competitors in both; to watch over, not only the occasional variations in the
demand, but the much greater and more frequent variations in the competition, or
in the supply which that demand is likely to get from other people; and to suit with
dexterity and judgment both the quantity and quality of each assortment of goods to
all these circumstances, is a species of warfare, of which the operations are continually
changing, and which can scarce ever be conducted successfully, without such an
unremitting exertion of vigilance and attention as cannot long be expected from the
directors of a joint-stock company. The East India company, upon the redemption
of their funds, and the expiration of their exclusive privilege, have a right, by act of
parliament, to continue a corporation with a joint stock, and to trade in their corporate
capacity to the East Indies, in common with the rest of their fellow subjects. But in
this situation, the superior vigilance and attention of a private adventurer would, in all
probability, soon make them weary of the trade.

An eminent French author, of great knowledge in matters of political economy,
the Abbe Morellet, gives a list of fifty-five joint-stock companies for foreign trade,
which have been established in different parts of Europe since the year 1600, and
which, according to him, have all failed from mismanagement, notwithstanding they
had exclusive privileges. He has been misinformed with regard to the history of two
or three of them, which were not joint-stock companies and have not failed. But, in
compensation, there have been several joint-stock companies which have failed, and
which he has omitted.

The only trades which it seems possible for a joint-stock company to carry on
successfully, without an exclusive privilege, are those, of which all the operations are
capable of being reduced to what ts called a routine, or to such a uniformity of method
as admits of little or no variation. Of this kind is, first, the banking trade; secondly,
the trade of insurance from fire and from sea risk, and capture in time of war; thirdly,
the trade of making and maintaining a navigable cut or canal; and, fourthly, the similar
trade of bringing water for the supply of a great city.

Though the principles of the banking trade may appear somewhat abstruse, the
practice is capable of being reduced to strict rules. To depart upon any occasion from
those rules, in consequence of some flattering speculation of extraordinary gain, is
almost always extremely dangerous and frequently fatal to the banking company which
attempts it. But the constitution of joint-stock companies renders them in general,
more tenacious of established rules than any private copartnery. Such companies,
therefore, seem extremely well fitted for this trade. The principal banking companies
in Europe, accordingly, are joint-stock companies, many of which manage their trade
very successfully without any exclusive privilege. The bank of England has no other
exclusive privilege, except that no other banking company in England shall consist

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of more than six persons. The two banks of Edinburgh are joint-stock companies,
without any exclusive privilege.

The value of the risk, either from fire, or from loss by sea, or by capture, though
it cannot, perhaps, be calculated very exactly, admits, however, of such a eTOss
estimation, as renders it, in some degree, reducible to strict rule and method. The
trade of insurance, therefore, may be carried on successfully by a joint-stock company,
without any exclusive privilege. Neither the London Assurance, nor the Royal Exchange
Assurance companies have any such privilege.

When a navigable cut or canal has been once made, the management of it becomes
quite simple and easy, and it is reducible to strict rule and method. Even the making of
it is So, as it may be contracted for with undertakers, at so much a mile, and so much a
lock. The same thing may be said of a canal, an aqueduct, or a great pipe for bringing
water to supply a great city. Such under-takings, therefore, may be, and accordingly
frequently are, very successfully managed by joint-stock companies, without any
exclusive privilege.

To establish a joint-stock company, however, for any undertaking, merely because
such a company might be capable of managing it successfully; or, to exempt a
particular set of dealers from some of the general laws which take place with regard
to all their neighbours, merely because they might be capable of thriving, if they had
such an exemption, would certainly not be reasonable. To render such an establishment
perfectly reasonable, with the circumstance of being reducible to strict rule and method,
two other circumstances ought to concur. First, it ought to appear with the clearest
evidence, that the undertaking is of greater and more general utility than the greater
part of common trades; and, secondly, that it requires a greater capital than can easily
be collected into a private copartnery. If a moderate capital were sufficient, the great
utility of the undertaking would not be a sufficient reason for establishing a joint-stock
company; because, in this case, the demand for what it was to produce, would readily
and easily be supplied by private adventurers. In the four trades above mentioned, both
those circumstances concur.

The great and general utility of the banking trade, when prudently managed, has
been fully explained in the second book of this Inquiry. But a public bank, which is
to support public credit, and, upon particular emergencies, to advance to government
the whole produce of a tax, to the amount, perhaps, of several millions, a year or two
before it comes in, requires a greater capital than can easily be collected into any private
copartnery.

The trade of insurance gives great security to the fortunes of private people, and,
by dividing among a great many that loss which would ruin an individual, makes it
fall light and easy upon the whole society. In order to give this security, however, it is
necessary that the insurers should have a very large capital. Before the establishment of
the two joint-stock companies for insurance in London, a list, it is said, was laid before
the attorney-general, of one hundred and fifty private usurers, who had failed in the

course of a few years.

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THE WEALTH OF NATIONS

That navigable cuts and canals, and the works which are sometimes necessary for
supplying a great city with water, are of great and general utility, while, at the same time,
they frequently require a greater expense than suits the fortunes of private people, is
sufficiently obvious.

Except the four trades above mentioned, I have not been able to recollect any other,
in which all the three circumstances requisite for rendering reasonable the establishment
of a joint-stock company concur. The English copper company of London, the lead-
smelting company, the glass-grinding company, have not even the pretext of any great
or singular utility in the object which they pursue; nor does the pursuit of that object
seem to require any expense unsuitable to the fortunes of many private men. Whether
the trade which those companies carry on, is reducible to such strict rule and method
as to render it fit for the management of a joint-stock company, or whether they have
any reason to boast of their extraordinary profits, I do not pretend to know. The mine-
adventurers company has been long ago bankrupt. A share in the stock of the British
Linen company of Edinburgh sells, at present, very much below par, though less so
than it did some years ago. The joint-stock companies, which are established for the
public-spirited purpose of promoting some particular manufacture, over and above
managing their own affairs ill, to the diminution of the general stock of the society,
can, in other respects, scarce ever fail to do more harm than good. Notwithstanding
the most upright intentions, the unavoidable partiality of their directors to particular
branches of the manufacture, of which the undertakers mislead and impose upon
them, is a real discouragement to the rest, and necessarily breaks, more or less, that
natural proportion which would otherwise establish itself between judicious industry
and profit, and which, to the general industry of the country, is of all encouragements
the greatest and the most effectual.

ART. I.—Of the Expense of the Institution for the Education of Youth.

The institutions for the education of the youth may, in the same manner, furnish
a revenue sufficient for defraying their own expense. The fee or honorary, which the
scholar pays to the master, naturally constitutes a revenue of this kind.

Even where the reward of the master does not arise altogether from this natural
revenue, it still is not necessary that it should be derived from that general revenue of
the society, of which the collection and application are, in most countries, assigned to
the executive power. Through the greater part of Europe, accordingly, the endowment
of schools and colleges makes either no charge upon that general revenue, or but a very
small one. It everywhere arises chiefly from some local or provincial revenue, from the
rent of some landed estate, or from the interest of some sum of money, allotted and
put under the management of trustees for this particular purpose, sometimes by the
sovereign himself, and sometimes by some private donor.

Have those public endowments contributed in general, to promote the end of
their institution? Have they contributed to encourage the diligence, and to improve the
abilities, of the teachers? Have they directed the course of education towards objects
more useful, both to the individual and to the public, than those to which it would

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naturally have gone of its own accord? It should not seem very difficult to give at least
a probable answer to each of those questions.

In every profession, the exertion of the greater part of those who exercise it, is
always in proportion to the necessity they are under of making that exertion. This
necessity is greatest with those to whom the emoluments of their profession are the
only source from which they expect their fortune, or even their ordinary revenue and
subsistence. In order to acquire this fortune, or even to get this subsistence, they must,
in the course of a year, execute a certain quantity of work of a known value; and,
where the competition is free, the rivalship of competitors, who are all endeavouring
to justle one another out of employment, obliges every man to endeavour to execute
his work with a certain degree of exactness. The greatness of the objects which are
to be acquired by success in some particular professions may, no doubt, sometimes
animate the exertions of a few men of extraordinary spirit and ambition. Great objects,
however, are evidently not necessary, in order to occasion the greatest exertions.
Rivalship and emulation render excellency, even in mean professions, an object of
ambition, and frequently occasion the very greatest exertions. Great objects, on the
contrary, alone and unsupported by the necessity of application, have seldom been
sufficient to occasion any considerable exertion. In England, success in the profession
of the law leads to some very great objects of ambition; and yet how few men, born to
easy fortunes, have ever in this country been eminent in that profession?

The endowments of schools and colleges have necessarily diminished, more or
less, the necessity of application in the teachers. Their subsistence, so far as it arises
from their salaries, is evidently derived from a fund, altogether independent of their
success and reputation in their particular professions.

In some universities, the salary makes but a part, and frequently but a small part, of
the emoluments of the teacher, of which the greater part arises from the honoraries or
fees of his pupils. The necessity of application, though always more or less diminished,
is not, in this case, entirely taken away. Reputation in his profession is still of some
importance to him, and he still has some dependency upon the affection, gratitude,
and favourable report of those who have attended upon his instructions; and these
favourable sentiments he is likely to gain in no way so well as by deserving them, that is,
by the abilities and diligence with which he discharges every part of his duty.

In other universities, the teacher is prohibited from receiving any honorary or fee
from his pupils, and his salary constitutes the whole of the revenue which he derives
from his office. His interest is, in this case, set as directly in opposition to his duty
as it is possible to set it. It is the interest of every man to live as much at his ease as
he can; and if his emoluments are to be precisely the same, whether he does or does
not perform some very laborious duty, it is certainly his interest, at least as interest is
vulgarly understood, either to neglect it altogether, or, if he is subject to some authority
which will not suffer him to do this, to perform it in as careless and slovenly a manner
as that authority will permit. If he is naturally active and a lover of labour, it is his
interest to employ that activity in any way from which he can detive some advantage,

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rather than in the performance of his duty, from which he can derive none.

If the authority to which he is subject resides in the body corporate, the college, ot
university, of which he himself is a member, and in which the greater part of the other
members ate, like himself, persons who either are, or ought to be teachers, they are
likely to make a common cause, to be all very indulgent to one another, and every man
to consent that his neighbour may neglect his duty, provided he himself is allowed to
neglect his own. In the university of Oxford, the greater part of the public professors
have, for these many years, given up altogether even the pretence of teaching.

If the authority to which he is subject resides, not so much in the body corporate,
of which he is a member, as in some other extraneous persons, in the bishop of the
diocese, for example, in the governor of the province, or, perhaps, in some minister of
state, it is not, indeed, in this case, very likely that he will be suffered to neglect his duty
altogether. All that such superiors, however, can force him to do, is to attend upon his
pupils a certain number of hours, that is, to give a certain number of lectures in the
week, or in the year. What those lectures shall be, must still depend upon the diligence
of the teacher; and that diligence is likely to be proportioned to the motives which
he has for exerting it. An extraneous jurisdiction of this kind, besides, is liable to be
exercised both ignorantly and capriciously. In its nature, it is arbitrary and discretionary;
and the persons who exercise it, neither attending upon the lectures of the teacher
themselves, nor perhaps understanding the sciences which it is his business to teach,
are seldom capable of exercising it with judgment. From the insolence of office, too,
they are frequently indifferent how they exercise it, and are very apt to censure or
deprive him of his office wantonly and without any just cause. The person subject to
such jurisdiction is necessarily degraded by it, and, instead of being one of the most
respectable, is rendered one of the meanest and most contemptible persons in the
society. It is by powerful protection only, that he can effectually guard himself against
the bad usage to which he is at all times exposed; and this protection he is most likely
to gain, not by ability or diligence in his profession, but by obsequiousness to the will
of his superiors, and by being ready, at all times, to sacrifice to that will the rights, the
interest, and the honour of the body corporate, of which he is a member. Whoever has
attended for any considerable time to the administration of a French university, must
have had occasion to remark the effects which naturally result from an arbitrary and
extraneous jurisdiction of this kind.

Whatever forces a certain number of students to any college or university,
independent of the merit or reputation of the teachers, tends more or less to diminish
the necessity of that merit or reputation.

The privileges of graduates in arts, in law, physic, and divinity, when they can be
obtained only by residing a certain number of years in certain universities, necessarily
force a certain number of students to such universities, independent of the merit
or reputation of the teachers. The privileges of graduates are a sort of statutes of
apprenticeship, which have contributed to the improvement of education just as the
other statutes of apprenticeship have to that of arts and manufactures.

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The charitable foundations of scholarships, exhibitions, bursaries, etc. necessarily
attach a certain number of students to certain colleges, independent altogether of the
merit of those particular colleges. Were the students upon such charitable foundations
left free to choose what college they liked best, such liberty might perhaps contribute
to excite some emulation among different colleges. A regulation, on the contrary, which
prohibited even the independent members of every particular college from leaving it,
and going to any other, without leave first asked and obtained of that which they meant
to abandon, would tend very much to extinguish that emulation.

If in each college, the tutor or teacher, who was to instruct each student in all arts
and sciences, should not be voluntarily chosen by the student, but appointed by the
head of the college; and if, in case of neglect, inability, or bad usage, the student should
not be allowed to change him for another, without leave first asked and obtained; such
a regulation would not only tend very much to extinguish all emulation among the
different tutors of the same college, but to diminish very much, in all of them, the
necessity of diligence and of attention to their respective pupils. Such teachers, though
very well paid by their students, might be as much disposed to neglect them, as those
who are not paid by them at all or who have no other recompense but their salary.

If the teacher happens to be a man of sense, it must be an unpleasant thing to
him to be conscious, while he is lecturing to his students, that he is either speaking or
reading nonsense, or what is very little better than nonsense. It must, too, be unpleasant
to him to observe, that the greater part of his students desert his lectures; or perhaps,
attend upon them with plain enough marks of neglect, contempt, and derision. If he
is obliged, therefore, to give a certain number of lectures, these motives alone, without
any other interest, might dispose him to take some pains to give tolerably good ones.
Several different expedients, however, may be fallen upon, which will effectually blunt
the edge of all those incitements to diligence. The teacher, instead of explaining to his
pupils himself the science in which he proposes to instruct them, may read some book
upon it; and if this book is written in a foreign and dead language, by interpreting it to
them into their own, or, what would give him still less trouble, by making them interpret
it to him, and by now and then making an occasional remark upon it, he may flatter
himself that he is giving a lecture. The slightest degree of knowledge and application
will enable him to do this, without exposing himself to contempt or derision, by saying
any thing that is really foolish, absurd, or ridiculous. The discipline of the college, at the
same time, may enable him to force all his pupils to the most regular attendance upon
his sham lecture, and to maintain the most decent and respectful behaviour during the
whole time of the performance.

The discipline of colleges and universities is in general contrived, not for the benefit
of the students, but for the interest, or, more properly speaking, for the ease of the
masters. Its object is, in all cases, to maintain the authority of the master, and, whether
he neglects or performs his duty, to oblige the students in all cases to behave to him as
if he performed it with the greatest diligence and ability. It seems to presume perfect
wisdom and virtue in the one order, and the greatest weakness and folly in the other.

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THE WEALTH OF NATIONS

Where the masters, however, really perform their duty, there are no examples, I believe,
that the greater part of the students ever neglect theirs. No discipline is ever requisite
to force attendance upon lectures which are really worth the attending, as is well known
wherever any such lectures are given. Force and restraint may, no doubt, be in some
degree requisite, in order to oblige children, or very young boys, to attend to those parts
of education, which it is thought necessary for them to acquire during that early period
of life; but after twelve or thirteen years of age, provided the master does his duty,
force or restraint can scarce ever be necessary to carry on any part of education. Such
is the generosity of the greater part of young men, that so far from being disposed to
neglect or despise the instructions of their master, provided he shews some serious
intention of being of use to them, they are generally inclined to pardon a great deal of
incorrectness in the performance of his duty, and sometimes even to conceal from the
public a good deal of gross negligence.

Those parts of education, it is to be observed, for the teaching of which there
are no public institutions, are generally the best taught. When a young man goes to
a fencing or a dancing school, he does not, indeed, always learn to fence or to dance
very well; but he seldom fails of learning to fence or to dance. The good effects of the
tiding school are not commonly so evident. The expense of a riding school is so great,
that in most places it is a public institution. The three most essential parts of literary
education, to read, write, and account, it still continues to be more common to acquire
in private than in public schools; and it very seldom happens, that anybody fails of
acquiring them to the degree in which it is necessary to acquire them.

In England, the public schools are much less corrupted than the universities. In
the schools, the youth are taught, or at least may be taught, Greek and Latin; that is,
everything which the masters pretend to teach, or which it is expected they should
teach. In the universities, the youth neither are taught, nor always can find any proper
means of being taught the sciences, which it is the business of those incorporated
bodies to teach. The reward of the schoolmaster, in most cases, depends principally, in
some cases almost entirely, upon the fees or honoraries of his scholars. Schools have
no exclusive privileges. In order to obtain the honours of graduation, it is not necessary
that a person should bring a certificate of his having studied a certain number of years
at a public school. If, upon examination, he appears to understand what is taught there,
no questions are asked about the place where he learnt it.

The parts of education which are commonly taught in universities, it may perhaps
be said, are not very well taught. But had it not been for those institutions, they would
not have been commonly taught at all; and both the individual and the public would
have suffered a good deal from the want of those important parts of education.

The present universities of Europe were originally, the greater part of them,
ecclesiastical corporations, instituted for the education of churchmen. They were
founded by the authority of the pope; and were so entirely under his immediate
protection, that their members, whether masters or students, had all of them what was
then called the benefit of clergy, that is, were exempted from the civil jurisdiction of the

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countries in which their respective universities were situated, and were amenable only
to the ecclesiastical tribunals. What was taught in the greater part of those universities
was suitable to the end of their institution, either theology, or something that was
merely preparatory to theology.

When Christianity was first established by law, a corrupted Latin had become the
common language of all the western parts of Europe. The service of the church,
accordingly, and the translation of the Bible which were read in churches, were both
in that corrupted Latin; that is, in the common language of the country, After the
irruption of the barbarous nations who overturned the Roman empire, Latin gradually
ceased to be the language of any part of Europe. But the reverence of the people
naturally preserves the established forms and ceremonies of religion long after the
circumstances which first introduced and rendered them reasonable, are no morte.
Though Latin, therefore, was no longer understood anywhere by the great body of
the people, the whole service of the church still continued to be performed in that
language. Two different languages were thus established in Europe, in the same manner
as in ancient Egypt: a language of the priests, and a language of the people; a sacred
and a profane, a learned and an unlearned language. But it was necessary that the priests
should understand something of that sacred and learned language in which they were
to officiate; and the study of the Latin language therefore made, from the beginning,
an essential part of university education.

It was not so with that either of the Greek or of the Hebrew language. The
infallible decrees of the church had pronounced the Latin translation of the Bible,
commonly called the Latin Vulgate, to have been equally dictated by divine inspiration,
and therefore of equal authority with the Greek and Hebrew originals. The knowledge
of those two languages, therefore, not being indispensably requisite to a churchman,
the study of them did not for along time make a necessary part of the common course
of university education. There are some Spanish universities, | am assured, in which
the study of the Greek language has never yet made any part of that course. The first
reformers found the Greek text of the New Testament, and even the Hebrew text of
the Old, more favourable to their opinions than the vulgate translation, which, as might
naturally be supposed, had been gradually accommodated to support the doctrines of
the Catholic Church. They set themselves, therefore, to expose the many errors of
that translation, which the Roman catholic clergy were thus put under the necessity
of defending or explaining. But this could not well be done without some knowledge
of the original languages, of which the study was therefore gradually introduced into
the greater part of universities; both of those which embraced, and of those which
rejected, the doctrines of the reformation. The Greek language was connected with
every part of that classical learning, which, though at first principally cultivated by
catholics and Italians, happened to come into fashion much about the same time that
the doctrines of the reformation were set on foot. In the greater part of universities,
therefore, that language was taught previous to the study of philosophy, and as soon
as the student had made some progress in the Latin. The Hebrew language having no

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connection with classical learning, and, except the Holy Scriptures, being the language
of not a single book in any esteem the study of it did not commonly commence till
after that of philosophy, and when the student had entered upon the study of theology.

Originally, the first rudiments, both of the Greek and Latin languages, were taught
in universities; and in some universities they still continue to be so. In others, it is
expected that the student should have previously acquired, at least, the rudiments of
one or both of those languages, of which the study continues to make everywhere a
very considerable part of university education.

The ancient Greek philosophy was divided into three great branches; physics, or
natural philosophy; ethics, or moral philosophy; and logic. This general division seems
perfectly agreeable to the nature of things.

The great phenomena of nature, the revolutions of the heavenly bodies, eclipses,
comets; thunder and lightning, and other extraordinary meteors; the generation, the life,
growth, and dissolution of plants and animals; are objects which, as they necessarily
excite the wonder, so they naturally call forth the curiosity of mankind to inquire into
their causes. Superstition first attempted to satisfy this curiosity, by referring all those
wonderful appearances to the immediate agency of the gods. Philosophy afterwards
endeavoured to account for them from more familiar causes, or from such as mankind
were better acquainted with, than the agency of the gods. As those great phenomena
are the first objects of human curiosity, so the science which pretends to explain them
must naturally have been the first branch of philosophy that was cuitivated. The first
philosophers, accordingly, of whom history has preserved any account, appear to have
been natural philosophers.

In every age and country of the world, men must have attended to the characters,
designs, and actions of one another; and many reputable rules and maxims for the
conduct of human life must have been laid down and approved of by common consent.
As soon as writing came into fashion, wise men, or those who fancied themselves such,
would naturally endeavour to increase the number of those established and respected
maxims, and to express their own sense of what was either proper or improper conduct,
sometimes in the more artificial form of apologues, like what are called the fables of
Aesop; and sometimes in the more simple one of apophthegms or wise sayings, like the
proverbs of Solomon, the verses of Theognis and Phocyllides, and some part of the
works of Hesiod. They might continue in this manner, fora long time, merely to multiply
the number of those maxims of prudence and morality, without even attempting to
arrange them in any very distinct or methodical order, much less to connect them
together by one or more general principles, from which they were all deducible, like
effects from their natural causes. The beauty of a systematical arrangement of different
observations, connected by a few common principles, was first seen in the rude essays
of those ancient times towards a system of natural philosophy. Something of the same
kind was afterwards attempted in morals. The maxims of common life were arranged
in some methodical order, and connected together by a few common principles, in the
same manner as they had attempted to arrange and connect the phenomena of nature.

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The science which pretends to investigate and explain those connecting principles, is
what is properly called Moral Philosophy.

Different authors gave different systems, both of natural and moral philosophy.
But the arguments by which they supported those different systems, far from being
always demonstrations, were frequently at best but very slender probabilities, and
sometimes mete sophisms, which had no other foundation but the inaccuracy and
ambiguity of common language. Speculative systems, have, in all ages of the world,
been adopted for reasons too frivolous to have determined the judgment of any man
of common sense, in a matter of the smallest pecuniary interest. Gross sophistry has
scatce ever had any influence upon the opinions of mankind, except in matters of
philosophy and speculation; and in these it has frequently had the greatest. The patrons
of each system of natural and moral philosophy, naturally endeavoured to expose the
weakness of the arguments adduced to support the systems which were opposite to
their own. In examining those arguments, they were necessarily led to consider the
difference between a probable and a demonstrative argument, between a fallacious
and a conclusive one; and logic, or the science of the general principles of good and
bad reasoning, necessarily arose out of the observations which a scrutiny of this kind
gave occasion to; though, in its origin, posterior both to physics and to ethics, it was
commonly taught, not indeed in all, but in the greater part of the ancient schools of
philosophy, previously to either of those sciences. The student, it seems to have been
thought, ought to understand well the difference between good and bad reasoning,
before he was led to reason upon subjects of so great importance.

This ancient division of philosophy into three parts was, in the greater part of the
universities of Europe, changed for another into five.

In the ancient philosophy, whatever was taught concerning the nature either of the
human mind or of the Deity, made a part of the system of physics. Those beings, in
whatever their essence might be supposed to consist, were parts of the great system of
the universe, and parts, too, productive of the most important effects. Whatever human
reason could either conclude or conjecture concerning them, made, as it were, two
chapters, though no doubt two very important ones, of the science which pretended
to give an account of the origin and revolutions of the great system of the universe.
But in the universities of Europe, where philosophy was taught only as subservient to
theology, it was natural to dwell longer upon these two chapters than upon any other of
the science. They were gradually more and more extended, and were divided into many
inferior chapters; till at last the doctrine of spirits, of which so little can be known,
came to take up as much room in the system of philosophy as the doctrine of bodies,
of which so much can be known. The doctrines concerning those two subjects were
considered as making two distinct sciences. What are called metaphysics, or pneumatics,
were set in opposition to physics, and were cultivated not only as the more sublime, but,
for the purposes of a particular profession, as the more useful science of the two. The
proper subject of experiment and observation, a subject in which a careful attention
is capable of making so many useful discoveries, was almost entirely neglected. The

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subject in which, after a very few simple and almost obvious truths, the most careful
attention can discover nothing but obscurity and uncertainty, and can consequently
produce nothing but subtleties and sophisms, was greatly cultivated.

When those two sciences had thus been set in opposition to one another, the
comparison between them naturally gave birth to a third, to what was called ontology,
or the science which treated of the qualities and attributes which were common to both
the subjects of the other two sciences. But if subtleties and sophisms composed the
greater part of the metaphysics or pneumatics of the schools, they composed the whole
of this cobweb science of ontology, which was likewise sometimes called metaphysics.

Wherein consisted the happiness and perfection of a man, considered not only
as an individual, but as the member of a family, of a state, and of the great society of
mankind, was the object which the ancient moral philosophy proposed to investigate.
In that philosophy, the duties of human life were treated of as subservient to the
happiness and perfection of human life, But when moral, as well as natural philosophy,
came to be taught only as subservient to theology, the duties of human life were treated
of as chiefly subservient to the happiness of a life to come. In the ancient philosophy,
the perfection of virtue was represented as necessarily productive, to the person who
possessed it, of the most perfect happiness in this life. In the modern philosophy, it
was frequently represented as generally, or rather as almost always, inconsistent with
any degree of happiness in this life; and heaven was to be earned only by penance
and mortification, by the austerities and abasement of a monk, not by the liberal,
generous, and spirited conduct of a man. Casuistry, and an ascetic morality, made up,
in most cases, the greater part of the moral philosophy of the schools. By far the most
important of all the different branches of philosophy became in this manner by far the
most corrupted.

Such, therefore, was the common course of philosophical education in the greater
part of the universities in Europe. Logic was taught first; ontology came in the second
place; pneumatology, comprehending the doctrine concerning the nature of the human
soul and of the Deity, in the third; in the fourth followed a debased system of moral
philosophy, which was considered as immediately connected with the doctrines of
pneumatology, with the immortality of the human soul, and with the rewards and
punishments which, from the justice of the Deity, were to be expected in a life to come:
a short and superficial system of physics usually concluded the coutse.

The alterations which the universities of Europe thus introduced into the ancient
course of philosophy were all meant for the education of ecclesiastics, and to render
it a more proper introduction to the study of theology. But the additional quantity
of subtlety and sophistry, the casuistry and ascetic morality which those alterations
introduced into it, certainly did not render it more for the education of gentlemen or
men of the world, or more likely either to improve the understanding or to mend the
heart.

This course of philosophy is what still continues to be taught in the greater part of
the universities of Europe, with more or less diligence, according as the constitution

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of each particular university happens to render diligence more or less necessary to
the teachers. In some of the richest and best endowed universities, the tutors content
themselves with teaching a few unconnected shreds and parcels of this corrupted
course; and even these they commonly teach very negligently and superficially.

The improvements which, in modern times have been made in several different
branches of philosophy, have not, the greater part of them, been made in universities,
though some, no doubt, have. The greater part of universities have not even been
very forward to adopt those improvements after they were made; and several of those
learned societies have chosen to remain, for a long time, the sanctuaries in which
exploded systems and obsolete prejudices found shelter and protection, after they
had been hunted out of every other corner of the world. In general, the richest and
best endowed universities have been slowest in adopting those improvements, and the
most averse to permit any considerable change in the established plan of education.
Those improvements were mote easily introduced into some of the poorer universities,
in which the teachers, depending upon their reputation for the greater part of their
subsistence, were obliged to pay more attention to the current opinions of the world.

But though the public schools and universities of Europe were originally intended
only for the education of a particular profession, that of churchmen; and though they
were not always very diligent in instructing their pupils, even in the sciences which
were supposed necessary for that profession; yet they gradually drew to themselves
the education of almost all other people, particularly of almost all gentlemen and men
of fortune. No better method, it seems, could be fallen upon, of spending, with any
advantage, the long interval between infancy and that period of life at which men
begin to apply in good earnest to the real business of the world, the business which is
to employ them during the remainder of their days. The greater part of what is taught
in schools and universities, however, does not seem to be the most proper preparation
for that business.

In England, it becomes every day more and more the custom to send young people
to travel in foreign countries immediately upon their leaving school, and without
sending them to any university. Our young people, it is said, generally return home much
improved by their travels. A young man, who goes abroad at seventeen or eighteen, and
returns home at one-and-twenty, returns three or four years older than he was when he
went abroad; and at that age it is very difficult not to improve a good deal in three or
four years. In the course of his travels, he generally acquires some knowledge of one or
two foreign languages; a knowledge, however, which is seldom sufficient to enable him
either to speak or write them with propriety. In other respects, he commonly returns
home more conceited, more unprincipled, more dissipated, and more incapable of my
serious application, either to study or to business, than he could well have become in
so short a time had he lived at home. By travelling so very young, by spending in the
most frivolous dissipation the most previous years of his life, at a distance from the
inspection and control of his parents and relations, every useful habit, which the earlier
parts of his education might have had some tendency to form in him, instead of being

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riveted and confirmed, is almost necessarily either weakened or effaced. Nothing but
the discredit into which the universities are allowing themselves to fall, could ever have
brought into repute so very absurd a practice as that of travelling at this early period of
life. By sending his son abroad, a father delivers himself, at least for some time, from
so disagreeable an object as that of a son unemployed, neglected, and going to ruin
before his eyes.

Such have been the effects of some of the modern institutions for education.

Different plans and different institutions for education seem to have taken place in
other ages and nations.

In the republics of ancient Greece, every free citizen was instructed, under the
direction of the public magistrate, in gymnastic exercises and in music. By gymnastic
exercises, it was intended to harden his body, to sharpen his courage, and to prepare
him for the fatigues and dangers of war; and as the Greek militia was, by all accounts,
one of the best that ever was in the world, this part of their public education must
have answered completely the purpose for which it was intended. By the other part,
music, it was proposed, at least by the philosophers and historians, who have given us
an account of those institutions, to humanize the mind, to soften the temper, and to
dispose it for performing all the social and moral duties of public and private life.

In ancient Rome, the exercises of the Campus Martius answered the same purpose
as those of the Gymnasium in ancient Greece, and they seem to have answered it
equally well. But among the Romans there was nothing which corresponded to the
musical education of the Greeks. The morals of the Romans, however, both in private
and public life, seem to have been, not only equal, but, upon the whole, a good deal
superior to those of the Greeks. That they were superior in private life, we have the
express testimony of Polybius, and of Dionysius of Halicarnassus, two authors well
acquainted with both nations; and the whole tenor of the Greek and Roman history
bears witness to the superiority of the public morals of the Romans. The good temper
and moderation of contending factions seem to be the most essential circumstances in
the public morals of a free people. But the factions of the Greeks were almost always
violent and sanguinary; whereas, till the time of the Gracchi, no blood had ever been
shed in any Roman faction; and from the time of the Gracchi, the Roman republic may
be considered as in reality dissolved. Notwithstanding, therefore, the very respectable
authority of Plato, Aristotle, and Polybius, and notwithstanding the very ingenious
reasons by which Mr. Montesquieu endeavours to support that authority, it seems
probable that the musical education of the Greeks had no great effect in mending their
morals, since, without any such education, those of the Romans were, upon the whole,
superior. The respect of those ancient sages for the institutions of their ancestors had
probably disposed them to find much political wisdom in what was, perhaps, merely
an ancient custom, continued, without interruption, from the earliest period of those
societies, to the times in which they had arrived at a considerable degree of refinement.
Music and dancing are the great amusements of almost all barbarous nations, and the
great accomplishments which are supposed to fit any man for entertaining his society.

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It is so at this day among the negroes on the coast of Africa. It was so among the
ancient Celtes, among the ancient Scandinavians, and, as we may learn from Homer,
among the ancient Greeks, in the times preceding the Trojan war. When the Greek
tribes had formed themselves into little republics, it was natural that the study of
those accomplishments should for a long time make a part of the public and common
education of the people.

The masters who instructed the young people, either in music or in military exercises,
do not seem to have been paid, or even appointed by the state, either in Rome or even
at Athens, the Greek republic of whose laws and customs we are the best informed.
The state required that every free citizen should fit himself for defending it in war, and
should upon that account, learn his military exercises. But it left him to learn them of
such masters as he could find; and it seems to have advanced nothing for this purpose,
but a public field or place of exercise, in which he should practise and perform them.

In the early ages, both of the Greek and Roman republics, the other parts of
education seem to have consisted in learning to read, write, and account, according to
the arithmetic of the times. These accomplishments the richer citizens seem frequently
to have acquired at home, by the assistance of some domestic pedagogue, who was,
generally, either a slave or a freedman; and the poorer citizens in the schools of such
masters as made a trade of teaching for hire. Such parts of education, however, were
abandoned altogether to the care of the parents or guardians of each individual. It does
not appear that the state ever assumed any inspection or direction of them. By a law
of Solon, indeed, the children were acquitted from maintaining those parents who had
neglected to instruct them in some profitable trade or business.

In the progress of refinement, when philosophy and rhetoric came into fashion,
the better sort of people used to send their children to the schools of philosophers and
rhetoricians, in order to be instructed in these fashionable sciences. But those schools
were not supported by the public. They were, for a long time, barely tolerated by it.
The demand for philosophy and rhetoric was, for a long time, so small, that the first
professed teachers of either could not find constant employment in any one city, but
were obliged to travel about from place to place. In this manner lived Zeno of Elea,
Protagoras, Gorgias, Hippias, and many others. As the demand increased, the school,
both of philosophy and rhetoric, became stationary, first in Athens, and afterwards in
several other cities. The state, however, seems never to have encouraged them further,
than by assigning to some of them a particular place to teach in, which was sometimes
done, too, by private donors. The state seems to have assigned the Academy to Plato,
the Lyceum to Aristotle, and the Portico to Zeno of Citta, the founder of the Stoics.
But Epicurus bequeathed his gardens to his own school. Till about the time of Marcus
Antoninus, however, no teacher appears to have had any salary from the public, or
to have had any other emoluments, but what arose from the honorarius or fees of
his scholars. The bounty which that philosophical emperor, as we learn from Lucian,
bestowed upon one of the teachers of philosophy, probably lasted no longer than his
own life. There was nothing equivalent to the privileges of graduation; and to have

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attended any of those schools was not necessary, in order to be permitted to practise
any particular trade or profession. If the opinion of their own utility could not draw
scholars to them, the law neither forced anybody to go to them, nor rewarded anybody
for having gone to them. The teachers had no jurisdiction over their pupils, nor any
other authority besides that natural authority which superior virtue and abilities never
fail to procure from young people towards those who are entrusted with any part of
their education.

At Rome, the study of the civil law made a part of the education, not of the greater
part of the citizens, but of some particular families. The young people, however,
who wished to acquire knowledge in the law, had no public school to go to, and had
no other method of studying it, than by frequenting the company of such of their
relations and friends as were supposed to understand it. It is, perhaps, worth while
to remark, that though the laws of the twelve tables were many of them copied from
those of some ancient Greek republics, yet law never seems to have grown up to be
a science in any republic of ancient Greece. In Rome it became a science very early,
and gave a considerable degree of illustration to those citizens who had the reputation
of understanding it. In the republics of ancient Greece, particularly in Athens, the
ordinary courts of justice consisted of numerous, and therefore disorderly, bodies of
people, who frequently decided almost at random, or as clamour, faction, and party-
spirit, happened to determine. The ignominy of an unjust decision, when it was to
be divided among five hundred, a thousand, or fifteen hundred people (for some of
their courts were so very numerous), could not fall very heavy upon any individual.
At Rome, on the contrary, the principal courts of justice consisted either of a single
judge, or of a small number of judges, whose characters, especially as they deliberated
always in public, could not fail to be very much affected by any rash or unjust decision.
In doubtful cases such courts, from their anxiety to avoid blame, would naturally
endeavour to shelter themselves under the example or precedent of the judges who
had sat before them, either in the same or in some other court. This attention to
practice and precedent, necessarily formed the Roman law into that regular and orderly
system in which it has been delivered down to us; and the like attention has had the
like effects upon the laws of every other country where such attention has taken place.
The superiority of character in the Romans over that of the Greeks, so much remarked
by Polybius and Dionysius of Halicarnassus, was probably more owing to the better
constitution of their courts of justice, than to any of the circumstances to which those
authors ascribe it. The Romans are said to have been particularly distinguished for their
superior respect to an oath. But the people who were accustomed to make oath only
before some diligent and well informed court of justice, would naturally be much more
attentive to what they swore, than they who were accustomed to do the same thing
before mobbish and disorderly assemblies.

The abilities, both civil and military, of the Greeks and Romans, will readily be
allowed to have been at least equal to those of any modern nation. Our prejudice is
perhaps rather to overrate them. But except in what related to military exercises, the

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state seems to have been at no pains to form those great abilities; for I cannot be induced
to believe that the musical education of the Greeks could be of much consequence in
forming them. Masters, however, had been found, it seems, for instructing the better
sort of people among those nations, in every art and science in which the circumstances
of their society rendered it necessary or convenient for them to be instructed. The
demand for such instruction produced, what it always produces, the talent for giving it;
and the emulation which an unrestrained competition never fails to excite, appears to
have brought that talent to a very high degree of perfection. In the attention which the
ancient philosophers excited, in the empire which they acquired over the opinions and
principles of their auditors, in the faculty which they possessed of giving a certain tone
and character to the conduct and conversation of those auditors, they appear to have
been much superior to any modern teachers. In modern times, the diligence of public
teachers is more or less corrupted by the circumstances which render them more or
less independent of their success and reputation in their particular professions. Their
salaries, too, put the private teacher, who would pretend to come into competition
with them, in the same state with a merchant who attempts to trade without a bounty,
in competition with those who trade with a considerable one. If he sells his goods
at nearly the same price, he cannot have the same profit; and poverty and beggary at
least, if not bankruptcy and ruin, will infallibly be his lot. If he attempts to sell them
much dearer, he is likely to have so few customers, that his circumstances will not be
much mended. The privileges of graduation, besides, are in many countries necessary,
or at least extremely convenient, to most men of learned professions, that is, to the far
greater part of those who have occasion for a learned education. But those privileges
can be obtained only by attending the lectures of the public teachers. The most careful
attendance upon the ablest instructions of any private teacher cannot always give any
title to demand them. It is from these different causes that the private teacher of any of
the sciences, which are commonly taught in universities, is, in modern times, generally
considered as in the very lowest order of men of letters. A man of real abilities can
scarce find out a more humiliating or a more unprofitable employment to turn them to.
The endowments of schools and colleges have in this manner not only corrupted the
diligence of public teachers, but have rendered it almost impossible to have any good
private ones.

Were there no public institutions for education, no system, no science, would be
taught, for which there was not some demand, or which the circumstances of the times
did not render it either necessary or convenient, or at least fashionable to learn. A private
teacher could never find his account in teaching either an exploded and antiquated
system of a science acknowledged to be useful, or a science universally believed to
be a mere useless and pedantic heap of sophistry and nonsense. Such systems, such
sciences, can subsist nowhere but in those incorporated societies for education, whose
prosperity and revenue are in a great measure independent of their industry. Were there
no public institutions for education, a gentleman, after going through, with application
and abilities, the most complete course of education which the circumstances of the

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times were supposed to afford, could not come into the world completely ignorant of
everything which is the common subject of conversation among gentlemen and men
of the world.

There are no public institutions for the education of women, and there is accordingly
nothing useless, absurd, or fantastical, in the common course of their education. They
are taught what their parents or guardians judge it necessary or useful for them to
learn, and they are taught nothing else. Every part of their education tends evidently
to some useful purpose; either to improve the natural attractions of their person, or
to form their mind to reserve, to modesty, to chastity, and to economy; to render
them both likely to became the mistresses of a family, and to behave properly when
they have become such. In every part of her life, a woman feels some conveniency or
advantage from every part of her education. It seldom happens that a man, in any part
of his life, derives any conveniency or advantage from some of the most laborious and
troublesome parts of his education.

Ought the public, therefore, to give no attention, it may be asked, to the education
of the people? Or, if it ought to give any, what are the different parts of education
which it ought to attend to in the different orders of the people? and in what manner
ought it to attend to them?

In some cases, the state of society necessarily places the greater part of individuals
in such situations as naturally form in them, without any attention of government,
almost all the abilities and virtues which that state requires, or perhaps can admit of.
In other cases, the state of the society does not place the greater part of individuals in
such situations; and some attention of government is necessary, in order to prevent the
almost entire corruption and degeneracy of the great body of the people.

In the progress of the division of labour, the employment of the far greater part of
those who live by labour, that is, of the great body of the people, comes to be confined
to a few very simple operations; frequently to one or two. But the understandings of the
greater part of men are necessarily formed by their ordinary employments. The man
whose whole life is spent in performing a few simple operations, of which the effects,
too, are perhaps always the same, or very nearly the same, has no occasion to exert his
understanding, or to exercise his invention, in finding out expedients for removing
difficulties which never occur. He naturally loses, therefore, the habit of such exertion,
and generally becomes as stupid and ignorant as it is possible for a human creature to
become. The torpor of his mind renders him not only incapable of relishing or bearing
a part in any rational conversation, but of conceiving any generous, noble, or tender
sentiment, and consequently of forming any just judgment concerning many even of
the ordinary duties of private life. Of the great and extensive interests of his country
he is altogether incapable of judging; and unless very particular pains have been taken
to render him otherwise, he is equally incapable of defending his country in war. The
uniformity of his stationary life naturally corrupts the courage of his mind, and makes
him regard, with abhorrence, the irregular, uncertain, and adventurous life of a soldier.
It corrupts even the activity of his body, and renders him incapable of exerting his

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strength with vigour and perseverance in any other employment, than that to which
he has been bred. His dexterity at his own particular trade seems, in this manner, to
be acquired at the expense of his intellectual, social, and martial virtues. But in every
improved and civilized society, this is the state into which the labouring poor, that is,
the great body of the people, must necessarily fall, unless government takes some pains
to prevent it.

It is otherwise in the barbarous societies, as they are commonly called, of hunters,
of shepherds, and even of husbandmen in that rude state of husbandry which precedes
the improvement of manufactures, and the extension of foreign commerce. In such
societies, the varied occupations of every man oblige every man to exert his capacity, and
to invent expedients for removing difficulties which are continually occurring, Invention
is kept alive, and the mind is not suffered to fall into that drowsy stupidity, which, in a
civilized society, seems to benumb the understanding of almost all the inferior ranks of
people. In those barbarous societies, as they are called, every man, it has already been
observed, is a warrior. Every man, too, is in some measure a statesman, and can form
a tolerable judgment concerning the interest of the society, and the conduct of those
who govern it. How far their chiefs are good judges in peace, or good leaders in war, is
obvious to the observation of almost every single man among them. In such a society,
indeed, no man can well acquire that improved and refined understanding which a few
men sometimes possess in a more civilized state. Though in a rude society there is a
good deal of variety in the occupations of every individual, there is not a great deal in
those of the whole society. Every man does, or is capable of doing, almost every thing
which any other man does, or is capable of being. Every man has a considerable degree
of knowledge, ingenuity, and invention but scarce any man has a great degree. The
degree, however, which is commonly possessed, is generally sufficient for conducting
the whole simple business of the society. In a civilized state, on the contrary, though
there is little variety in the occupations of the greater part of individuals, there is an
almost infinite variety in those of the whole society. These varied occupations present
an almost infinite variety of objects to the contemplation of those few, who, being
attached to no particular occupation themselves, have leisure and inclination to examine
the occupations of other people. The contemplation of so great a variety of objects
necessarily exercises their minds in endless comparisons and combinations, and renders
their understandings, in an extraordinary degree, both acute anti comprehensive.
Unless those few, however, happen to be placed in some very particular situations, their
great abilities, though honourable to themselves, may contribute very little to the good
government or happiness of their society. Notwithstanding the great abilities of those
few, all the nobler parts of the human character may be, in a great measure, obliterated
and extinguished in the great body of the people.

The education of the common people requires, perhaps, in a civilized and
commercial society, the attention of the public, more than that of people of some rank
and fortune. People of some rank and fortune are generally eighteen or nineteen years
of age before they enter upon that particular business, profession, or trade, by which

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THE WEALTH OF NATIONS

they propose to distinguish themselves in the world. They have, before that, full time
to acquire, or at least to fit themselves for afterwards acquiring, every accomplishment
which can recommend them to the public esteem, or render them worthy of it.
Their parents or guardians are generally sufficiently anxious that they should be so
accomplished, and are in most cases, willing enough to lay out the expense which is
necessary for that purpose. If they are not always properly educated, it is seldom from
the want of expense laid out upon their education, but from the improper application
of that expense. It is seldom from the want of masters, but from the negligence and
incapacity of the masters who are to be had, and from the difficulty, or rather from the
impossibility, which there is, in the present state of things, of finding any better. The
employments, too, in which people of some rank or fortune spend the greater part of
their lives, are not, like those of the common people, simple and uniform. They are
almost all of them extremely complicated, and such as exercise the head more than
the hands. The understandings of those who are engaged in such employments, can
seldom grow torpid for want of exercise. The employments of people of some rank
and fortune, besides, are seldom such as harass them from morning to night. They
generally have a good deal of leisure, during which they may perfect themselves in
every branch, either of useful or ornamental knowledge, of which they may have laid
the foundation, or for which they may have acquired some taste in the earlier part of
life.

Itis otherwise with the common people. They have little time to spare for education.
Their parents can scarce afford to maintain them, even in infancy. As soon as they are
able to work, they must apply to some trade, by which they can earn their subsistence.
That trade, too, is generally so simple and uniform, as to give little exercise to the
understanding; while, at the same time, their labour is both so constant and so severe,
that it leaves them little leisure and less inclination to apply to, or even to think of any
thing else.

But though the common people cannot, in any civilized society, be so well instructed
as people of some rank and fortune; the most essential parts of education, however,
to read, write, and account, can be acquired at so early a period of life, that the greater
part, even of those who are to be bred to the lowest occupations, have time to acquire
them before they can be employed in those occupations. For a very small expense, the
public can facilitate, can encourage and can even impose upon almost the whole body
of the people, the necessity of acquiring those most essential parts of education.

The public can facilitate this acquisition, by establishing in every parish or district
a little school, where children maybe taught for a reward so moderate, that even a
common labourer may afford it; the master being partly, but not wholly, paid by the
public; because, if he was wholly, or even principally, paid by it, he would soon learn to
neglect his business. In Scotland, the establishment of such parish schools has taught
almost the whole common people to read, and a very great proportion of them to write
and account. In England, the establishment of charity schools has had an effect of the
same kind, though not so universally, because the establishment is not so universal.

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If, in those little schools, the books by which the children are taught to read, were a
little more instructive than they commonly ate; and if, instead of a little smattering
in Latin, which the children of the common people are sometimes taught there, and
which can scarce evet be of any use to them, they were instructed in the elementary
parts of geometry and mechanics; the literary education of this rank of people would,
perhaps, be as complete as can be. There is scarce a common trade, which does not
afford some opportunities of applying to it the principles of geometry and mechanics,
and which would not, therefore, gradually exercise and improve the common people in
those principles, the necessary introduction to the most sublime, as well as to the most
useful sciences.

The public can encourage the acquisition of those most essential parts of
education, by giving small premiums, and little badges of distinction, to the children of
the common people who excel in them.

The public can impose upon almost the whole body of the people the necessity of
acquiring the most essential parts of education, by obliging every man to undergo an
examination or probation in them, before he can obtain the freedom in any corporation,
or be allowed to set up any trade, either in a village or town corporate.

It was in this manner, by facilitating the acquisition of their military and gymnastic
exercises, by encouraging it, and even by imposing upon the whole body of the
people the necessity of learning those exercises, that the Greek and Roman republics
maintained the martial spirit of their respective citizens. They facilitated the acquisition
of those exercises, by appointing a certain place for learning and practising them, and
by granting to certain masters the privilege of teaching in that place. Those masters
do not appear to have had either salaries or exclusive privileges of any kind. Their
reward consisted altogether in what they got from their scholars; and a citizen, who
had learnt his exercises in the public gymnasia, had no sort of legal advantage over one
who had learnt them privately, provided the latter had learned them equally well. Those
republics encouraged the acquisition of those exercises, by bestowing little premiums
and badges of distinction upon those who excelled in them. To have gained a prize in
the Olympic, Isthmian, or Nemaean games, gave illustration, not only to the person
who gained it, but to his whole family and kindred. The obligation which every citizen
was under, to serve a certain number of years, if called upon, in the armies of the
republic, sufficiently imposed the necessity of learning those exercises, without which
he could not be fit for that service.

That in the progress of improvement, the practice of military exercises, unless
government takes proper pains to support it, goes gradually to decay, and, together
with it, the martial spirit of the great body of the people, the example of modern
Europe sufficiently demonstrates. But the security of every society must always
depend, more or less, upon the martial spirit of the great body of the people. In the
present times, indeed, that martial spirit alone, and unsupported by a well-disciplined
standing army, would not, perhaps, be sufficient for the defence and security of any
society. But where every citizen had the spirit of a soldier, a smaller standing army

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would surely be requisite. That spirit, besides, would necessarily diminish very much the
dangers to liberty, whether real or imaginary, which are commonly apprehended from
a standing army. As it would very much facilitate the operations of that army against a
foreign invader; so it would obstruct them as much, if unfortunately they should ever
be directed against the constitution of the state.

The ancient institutions of Greece and Rome seem to have been much more
effectual for maintaining the martial spirit of the great body of the people, than the
establishment of what ate called the militias of modern times. They were much more
simple. When they were once established, they executed themselves, and it required
little or no attention from government to maintain them in the most perfect vigour.
Whereas to maintain, even in tolerable execution, the complex regulations of any
modern militia, requires the continual and painful attention of government, without
which they are constantly falling into total neglect and disuse. The influence, besides, of
the ancient institutions, was much more universal. By means of them, the whole body
of the people was completely instructed in the use of arms; whereas it is but a very
small part of them who can ever be so instructed by the regulations of any modern
militia, except, perhaps, that of Switzerland. But a coward, a man incapable either of
defending or of revenging himself, evidently wants one of the most essential parts of
the character of a man. He is as much mutilated and deformed in his mind as another
is in his body, who ts either deprived of some of its most essential members, or has lost
the use of them. He is evidently the more wretched and miserable of the two; because
happiness and misery, which reside altogether in the mind, must necessarily depend
more upon the healthful or unhealthful, the mutilated or entire state of the mind,
than upon that of the body. Even though the martial spirit of the people were of no
use towards the defence of the society, yet, to prevent that sort of mental mutilation,
deformity, and wretchedness, which cowardice necessarily involves in it, from spreading
themselves through the great body of the people, would still deserve the most serious
attention of government; in the same manner as it would deserve its most serious
attention to prevent a leprosy, or any other loathsome and offensive disease, though
neither mortal nor dangerous, from spreading itself among them; though, perhaps, no
other public good might result from such attention, besides the prevention of so great
a public evil.

The same thing may be said of the gross ignorance and stupidity which, in a
civilized society, seem so frequently to benumb the understandings of all the inferior
ranks of people. A man without the proper use of the intellectual faculties of a man,
is, if possible, more contemptible than even a coward, and seems to be mutilated and
deformed in a still more essential part of the character of human nature. Though the
State was to derive no advantage from the instruction of the inferior ranks of people,
it would still deserve its attention that they should not be altogether uninstructed.
The state, however, derives no inconsiderable advantage from their instruction. The
more they are instructed, the less liable they are to the delusions of enthusiasm and
superstition, which, among ignorant nations frequently occasion the most dreadful

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ADAM SMITH

disorders. An instructed and intelligent people, besides, are always more decent and
orderly than an ignorant and stupid one. They feel themselves, each individually, more
respectable, and more likely to obtain the respect of their lawful superiors, and they
are, therefore, more disposed to respect those superiors. They are more disposed to
examine, and more capable of seeing through, the interested complaints of faction
and sedition; and they are, upon that account, less apt to be misled into any wanton or
unnecessaty opposition to the measures of government. In free countries, where the
safety of government depends very much upon the favourable judgment which the
people may form of its conduct, it must surely be of the highest importance, that they
should not be disposed to judge rashly or capriciously concerning it.

Art. I[1—Of the Expense of the Institutions for the Instruction of People of all
Ages.

The institutions for the instruction of people of all ages, are chiefly those for
religious instruction. This is a species of instruction, of which the object is not so
much to render the people good citizens in this world, as to prepare them for another
and a better world in the life to come. The teachers of the doctrine which contains this
instruction, in the same manner as other teachers, may either depend altogether for
their subsistence upon the voluntary contributions of their hearers; or they may derive
it from some other fund, to which the law of their country may entitle them; such as a
landed estate, a tythe or land tax, an established salary or stipend. Their exertion, their
zeal and industry, are likely to be much greater in the former situation than in the latter.
In this respect, the teachers of a new religion have always had a considerable advantage
in attacking those ancient and established systems, of which the clergy, reposing
themselves upon their benefices, had neglected to keep up the fervour of faith and
devotion in the great body of the people; and having given themselves up to indolence,
were become altogether incapable of making any vigorous exertion in defence even
of their own establishment. The clergy of an established and well endowed religion
frequently become men of learning and elegance, who possess all the virtues of
gentlemen, or which can recommend them to the esteem of gentlemen; but they are
apt gradually to lose the qualities, both good and bad, which gave them authority and
influence with the inferior ranks of people, and which had perhaps been the original
causes of the success and establishment of their religion. Such a clergy, when attacked
by a set of popular and bold, though perhaps stupid and ignorant enthusiasts, feel
themselves as perfectly defenceless as the indolent, effeminate, and full fed nations of
the southern parts of Asia, when they were invaded by the active, hardy, and hungry
Tartars of the north. Such a clergy, upon such an emergency, have commonly no other
resource than to call upon the civil magistrate to persecute, destroy, or drive out their
adversaries, as disturbers of the public peace. It was thus that the Roman catholic
clergy called upon the civil magistrate to persecute the protestants, and the church of
England to persecute the dissenters; and that in general every religious sect, when it
has once enjoyed, for a century or two, the security of a legal establishment, has found
itself incapable of making any vigorous defence against any new sect which chose

567

THE WEALTH OF NATIONS — ._—s—_iséa.és_wlwtN#t(Uwt.

to attack its doctrine or discipline. Upon such occasions, the advantage, in point of
learning and good writing, may sometimes be on the side of the established church.
But the arts of popularity, all the arts of gaining proselytes, are constantly on the side
of its adversaries. In England, those arts have been long neglected by the well endowed
clergy of the established church, and are at present chiefly cultivated by the dissenters
and by the methodists. The independent provisions, however, which in many places
have been made for dissenting teachers, by means of voluntary subscriptions, of trust
rights, and other evasions of the law, seem very much to have abated the zeal and
activity of those teachers. They have many of them become very learned, ingenious,
and respectable men; but they have in general ceased to be very popular preachers. The
methodists, without half the learning of the dissenters, are much more in vogue.

In the church of Rome the industry and zeal of the inferior clergy are kept more
alive by the powerful motive of self-interest, than perhaps in any established protestant
church. The parochial clergy derive many of them, a very considerable part of their
subsistence from the voluntary oblations of the people; a source of revenue, which
confession gives them many opportunities of improving. The mendicant orders derive
their whole subsistence from such oblations. It is with them as with the hussars and
light infantry of some armies; no plunder, no pay. The parochial clergy are like those
teachers whose reward depends partly upon their salary, and partly upon the fees or
honoraries which they get from their pupils; and these must always depend, more or less,
upon their industry and reputation. The mendicant orders are like those teachers whose
subsistence depends altogether upon their industry. They are obliged, therefore, to use
every att which can animate the devotion of the common people. The establishment
of the two great mendicant orders of St Dominic and St. Francis, it is observed by
Machiavel, revived, in the thirteenth and fourteenth centuries, the languishing faith and
devotion of the catholic church. In Roman catholic countries, the spirit of devotion
is supported altogether by the monks, and by the poorer parochial clergy. The great
dignitaries of the church, with all the accomplishments of gentlemen and men of
the world, and sometimes with those of men of learning, are careful to maintain the
necessary discipline over their inferiors, but seldom give themselves any trouble about
the instruction of the people.

“Most of the arts and professions in a state,” says by far the most illustrious
philosopher and historian of the present age, “are of such a nature, that, while they
promote the interests of the society, they are also useful or agreeable to some individuals;
and, in that case, the constant rule of the magistrate, except, perhaps, on the first
introduction of any art, is, to leave the profession to itself, and trust its encouragement
to the individuals who reap the benefit of it. The artizans, finding their profits to rise
by the favour of their customers, increase, as much as possible, their skill and industry;
and as matters are not disturbed by any injudicious tampering, the commodity is always
sure to be at all times nearly proportioned to the demand.

“But there are also some callings which, though useful and even necessary in a state,
bring no advantage or pleasure to any individual; and the supreme power is obliged to

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alter its conduct with regard to the retainers of those professions. It must give them
public encouragement in order to their subsistence; and it must provide against that
negligence to which they will naturally be subject, either by annexing particular honours
to profession, by establishing a long subordination of ranks, and a strict dependence, or
by some other expedient. The persons employed in the finances, fleets, and magistracy,
are instances of this order of men.

“Tt may naturally be thought, at first sight, that the ecclesiastics belong to the first
class, and that their encouragement, as well as that of lawyers and physicians, may
safely be entrusted to the liberality of individuals, who ate attached to their doctrines,
and who find benefit or consolation from their spiritual ministry and assistance. Their
industry and vigilance will, no doubt, be whetted by such an additional motive; and
their skill in the profession, as well as their address in governing the minds of the
people, must receive daily increase, from their increasing practice, study, and attention.

“But if we consider the matter more closely, we shall find that this interested diligence
of the clergy is what every wise legislator will study to prevent; because, in every religion
except the true, it is highly pernicious, and it has even a natural tendency to pervert
the truth, by infusing into it a strong mixture of superstition, folly, and delusion. Each
ghostly practitioner, in order to render himself more precious and sacred in the eyes of
his retainers, will inspire them with the most violent abhorrence of all other sects, and
continually endeavour, by some novelty, to excite the languid devotion of his audience.
No regard will be paid to truth, morals, or decency, in the doctrines inculcated. Every
tenet will be adopted that best suits the disorderly affections of the human frame.
Customers will be drawn to each conventicle by new industry and address, in practising
on the passions and credulity of the populace. And, in the end, the civil magistrate will
find that he has dearly paid for his intended frugality, in saving a fixed establishment
for the priests; and that, in reality, the most decent and advantageous composition,
which he can make with the spiritual guides, 1s to bribe their indolence, by assigning
stated salaries to their profession, and rendering it superfluous for them to be farther
active, than merely to prevent their flock from straying in quest of new pastors. And
in this manner ecclesiastical establishments, though commonly they arose at first from
religious views, prove in the end advantageous to the political interests of society.”

But whatever may have been the good or bad effects of the independent provision
of the clergy, it has, perhaps, been very seldom bestowed upon them from any view
to those effects. Times of violent religious controversy have generally been times of
equally violent political faction. Upon such occasions, each political party has either
found it, or imagined it, for his interest, to league itself with some one or other of
the contending religious sects. But this could be done only by adopting, or, at least, by
favouring the tenets of that particular sect. The sect which had the good fortune to be
leagued with the conquering party necessarily shared in the victory of its ally, by whose
favour and protection it was soon enabled, in some degree, to silence and subdue all
its adversaries. Those adversaries had generally leagued themselves with the enemies
of the conquering party, and were, therefore the enemies of that party. The clergy

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THE WEALTH OF NATIONS

of this particular sect having thus become complete masters of the field, and their
influence and authority with the great body of the people being in its highest vigour,
they were powerful enough to overawe the chiefs and leaders of their own party, and to
oblige the civil magistrate to respect their opinions and inclinations. Their first demand
was generally that he should silence and subdue all their adversaries; and their second,
that he should bestow an independent provision on themselves. As they had generally
contributed a good deal to the victory, it seemed not unreasonable that they should
have some share in the spoil. They were weary, besides, of humouring the people, and
of depending upon their caprice for a subsistence. In making this demand, therefore,
they consulted their own ease and comfort, without troubling themselves about the
effect which it might have, in future times, upon the influence and authority of their
order. The civil magistrate, who could comply with their demand only by giving them
something which he would have chosen much rather to take, or to keep to himself, was
seldom very forward to grant it. Necessity, however, always forced him to submit at
last, though frequently not till after many delays, evasions, and affected excuses.

But if politics had never called in the aid of religion, had the conquering party
never adopted the tenets of one sect more than those of another, when it had gained
the victory, it would probably have dealt equally and impartially with all the different
sects, and have allowed every man to choose his own priest, and his own religion, as he
thought proper. There would, and, in this case, no doubt, have been, a great multitude
of religious sects. Almost every different congregation might probably have had a little
sect by itself, or have entertained some peculiar tenets of its own. Each teacher, would,
no doubt, have felt himself under the necessity of making the utmost exertion, and
of using every art, both to preserve and to increase the number of his disciples. But
as every other teacher would have felt himself under the same necessity, the success
of no one teacher, or sect of teachers, could have been very great. The interested and
active zeal of religious teachers can be dangerous and troublesome only where there
is either but one sect tolerated in the society, or where the whole of a large society is
divided into two or three great sects; the teachers of each acting by concert, and under
a regular discipline and subordination. But that zeal must be altogether innocent, where
the society is divided into two or three hundred, or, perhaps, into as many thousand
small sects, of which no one could be considerable enough to disturb the public
tranquillity. The teachers of each sect, seeing themselves surrounded on all sides with
more adversaries than friends, would be obliged to learn that candout and moderation
which are so seldom to be found among the teachers of those great sects, whose
tenets, being supported by the civil magistrate, are held in veneration by almost all the
inhabitants of extensive kingdoms and empires, and who, therefore, see nothing round
them but followers, disciples, and humble admirers. The teachers of each little sect,
finding themselves almost alone, would be obliged to respect those of almost every
other sect; and the concessions which they would mutually find in both convenient
and agreeable to make one to another, might in time, probably reduce the doctrine of
the greater part of them to that pure and rational religion, free from every mixture of

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absurdity, imposture, or fanaticism, such as wise men have, in all ages of the world,
wished to see established; but such as positive law has, perhaps, never yet established,
and probably never will establish in any country; because, with regard to religion,
positive law always has been, and probably always will be, more or less influenced by
popular superstition and enthusiasm. This plan of ecclesiastical government, or, more
properly, of no ecclesiastical government, was what the sect called Independents (a
sect, no doubt, of very wild enthusiasts), proposed to establish in England towards
the end of the civil war. If it had been established, though of a very unphilosophical
origin, it would probably, by this time, have been productive of the most philosophical
good temper and moderation with regard to every sort of religious principle. It has
been established in Pennsylvania, where, though the quakers happen to be the most
numerous, the law, in reality, favours no one sect more than another; and it is there said
to have been productive of this philosophical good temper and moderation.

But though this equality of treatment should not be productive of this good
temper and moderation in all, or even in the greater part of the religious sects of a
particular country; yet, provided those sects were sufficiently numerous, and each of
them consequently too small to disturb the public tranquillity, the excessive zeal of each
for its particular tenets could not well be productive of any very hurtful effects, but, on
the contrary, of several good ones; and if the government was perfectly decided, both
to let them all alone, and to oblige them all to let alone one another, there is little danger
that they would not of their own accord, subdivide themselves fast enough, so as soon
to become sufficiently numerous.

In every civilized society, in every society where the distinction of ranks has once
been completely established, there have been always two different schemes or systems
of morality current at the same time; of which the one may be called the strict or
austere; the other the liberal, or, if you will, the loose system. The former is generally
admired and revered by the common people; the latter is commonly more esteemed
and adopted by what are called the people of fashion. The degree of disapprobation
with which we ought to mark the vices of levity, the vices which are apt to arise from
great prosperity, and from the excess of gaiety and good humour, seems to constitute
the principal distinction between those two opposite schemes or systems. In the liberal
or loose system, luxury, wanton, and even disorderly mirth, the pursuit of pleasure
to some degree of intemperance, the breach of chastity, at least in one of the two
sexes, etc. provided they are not accompanied with gross indecency, and do not lead
to falsehood and injustice, are generally treated with a good deal of indulgence, and
are easily either excused or pardoned altogether. In the austere system, on the contrary,
those excesses ate regarded with the utmost abhorrence and detestation. The vices of
levity are always ruinous to the common people, and a single week’s thoughtlessness
and dissipation is often sufficient to undo a poor workman for ever, and to drive
him, through despair, upon committing the most enormous crimes. The wiser and
better sort of the common people, therefore, have always the utmost abhorrence and
detestation of such excesses, which their experience tells them are so immediately fatal

ovis:

THE WEALTH OF NATIONS

to people of their condition. The disorder and extravagance of several years, on the
contrary, will not always ruin a man of fashion; and people of that rank are very apt to
consider the power of indulging in some degree of excess, as one of the advantages
of their fortune; and the liberty of doing so without censure or reproach, as one of
the privileges which belong to their station. In people of their own station, therefore,
they regard such excesses with but a small degree of disapprobation, and censure them
either very slightly or not at all.

Almost all religious sects have begun among the common people, from whom
they have generally drawn their earliest, as well as their most numerous proselytes.
The austere system of morality has, accordingly, been adopted by those sects almost
constantly, or with very few exceptions; for there have been some. It was the system
by which they could best recommend themselves to that order of people, to whom
they first proposed their plan of reformation upon what had been before established.
Many of them, perhaps the greater part of them, have even endeavoured to gain credit
by refining upon this austere system, and by carrying it to some degree of folly and
extravagance; and this excessive rigour has frequently recommended them, more than
any thing else, to the respect and veneration of the common people.

A man of rank and fortune is, by his station, the distinguished member of a great
society, who attend to every part of his conduct, and who thereby oblige him to attend
to every part of it himself. His authority and consideration depend very much upon
the respect which this society bears to him. He dares not do anything which would
disgrace or discredit him in it; and he is obliged to a very strict observation of that
species of morals, whether liberal or austere, which the general consent of this society
prescribes to persons of his rank and fortune. A man of low condition, on the contrary,
is far from being a distinguished member of any great society. While he remains in
a country village, his conduct may be attended to, and he may be obliged to attend
to it himself. In this situation, and in this situation only, he may have what is called a
character to lose. But as soon as he comes into a great city, he is sunk in obscurity and
darkness. His conduct is observed and attended to by nobody; and he is, therefore, very
likely to neglect it himself, and to abandon himself to every sort of low profligacy and
vice. He never emerges so effectually from this obscurity, his conduct never excites so
much the attention of any respectable society, as by his becoming the member of a
small religious sect. He from that moment acquires a degree of consideration which he
never had before. All his brother sectaries are, for the credit of the sect, interested to
observe his conduct; and, if he gives occasion to any scandal, if he deviates very much
from those austere morals which they almost always require of one another, to punish
him by what is always a very severe punishment, even where no evil effects attend it,
expulsion or excommunication from the sect. In little religious sects, accordingly, the
morals of the common people have been almost always remarkably regular and orderly;
generally much more so than in the established church. The morals of those little sects,
indeed, have frequently been rather disagreeably rigorous and unsocial.

There are two very easy and effectual remedies, however, by whose joint operation

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ADAM SMITH

the state might, without violence, correct whatever was unsocial or disagreeably
rigorous in the morals of all the little sects into which the country was divided.

The first of those remedies is the study of science and philosophy, which the state
might render almost universal among all people of middling or more than middling
rank and fortune; not by giving salaries to teachers in order to make them negligent and
idle, but by instituting some sort of probation, even in the higher and more difficult
sciences, to be undergone by every person before he was permitted to exercise any
liberal profession, or before he could be received as a candidate for any honourable
office, of trust or profit. If the state imposed upon this order of men the necessity
of learning, it would have no occasion to give itself any trouble about providing them
with proper teachers. They would soon find better teachers for themselves, than any
whom the state could provide for them. Science is the great antidote to the poison of
enthusiasm and superstition; and where all the superior ranks of people were secured
from it, the inferior tanks could not be much exposed to it.

The second of those remedies is the frequency and gaiety of public diversions.
The state, by encouraging, that is, by giving entire liberty to all those who, from their
own interest, would attempt, without scandal or indecency, to amuse and divert the
people by painting, poetry, music, dancing; by all sorts of dramatic representations
and exhibitions; would easily dissipate, in the greater part of them, that melancholy
and gloomy humour which is almost always the nurse of popular superstition and
enthusiasm. Public diversions have always been the objects of dread and hatred to
all the fanatical promoters of those popular frenzies. The gaiety and good humour
which those diversions inspire, were altogether inconsistent with that temper of mind
which was fittest for their purpose, or which they could best work upon. Dramatic
representations, besides, frequently exposing their artifices to public ridicule, and
sometimes even to public execration, were, upon that account, more than all other
diversions, the objects of their peculiar abhorrence.

In a country where the law favoured the teachers of no one religion more than
those of another, it would not be necessary that any of them should have any particular
ot immediate dependency upon the sovereign or executive power; or that he should
have anything to do either in appointing or in dismissing them from their offices. In
such a situation, he would have no occasion to give himself any concern about them,
further than to keep the peace among them, in the same manner as among the rest
of his subjects, that is, to hinder them from persecuting, abusing, or oppressing one
another. But it is quite otherwise in countries where there is an established or governing
religion. The sovereign can in this case never be secure, unless he has the means of
influencing in a considerable degree the greater part of the teachers of that religion.

The clergy of every established church constitute a great incorporation. They can
act in concert, and pursue their interest upon one plan, and with one spirit as much
as if they were under the direction of one man; and they are frequently, too, under
such direction. Their interest as an incorporated body is never the same with that
of the sovereign, and is sometimes directly opposite to it. Their great interest is to

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maintain their authority with the people, and this authority depends upon the supposed
certainty and importance of the whole doctrine which they inculcate, and upon the
supposed necessity of adopting every part of it with the most implicit faith, in order
to avoid eternal misery. Should the sovereign have the imprudence to appear either to
deride, or doubt himself of the most trifling part of their doctrine, or from humanity,
attempt to protect those who did either the one or the other, the punctilious honour
of a clergy, who have no sort of dependency upon him, is immediately provoked
to proscribe him as a profane person, and to employ all the terrors of religion, in
order to oblige the people to transfer their allegiance to some more orthodox and
obedient prince. Should he oppose any of their pretensions or usurpations, the danger
is equally great. The princes who have dared in this manner to rebel against the church,
overt and above this crime of rebellion, have generally been charged, too, with the
additional crime of heresy, notwithstanding their solemn protestations of their faith,
and humble submission to every tenet which she thought proper to prescribe to them.
But the authority of religion is superior to every other authority. The fears which it
suggests conquer all other fears. When the authorized teachers of religion propagate
through the great body of the people, doctrines subversive of the authority of the
sovereign, it is by violence only, or by the force of a standing army, that he can maintain
his authority. Even a standing army cannot in this case give him any lasting security;
because if the soldiers are not foreigners, which can seldom be the case, but drawn
from the great body of the people, which must almost always be the case, they are likely
to be soon corrupted by those very doctrines. The revolutions which the turbulence of
the Greek clergy was continually occasioning at Constantinople, as long as the eastern
empire subsisted; the convulsions which, during the course of several centuries, the
turbulence of the Roman clergy was continually occasioning in every part of Europe,
sufficiently demonstrate how precarious and insecure must always be the situation of
the sovereign, who has no proper means of influencing the clergy of the established
and governing religion of his country.

Articles of faith, as well as all other spiritual matters, it is evident enough, are
not within the proper department of a temporal sovereign, who, though he may be
very well qualified for protecting, is seldom supposed to be so for instructing the
people. With regard to such matters, therefore, his authority can seldom be sufficient
to counterbalance the united authority of the clergy of the established church. The
public tranquillity, however, and his own security, may frequently depend upon the
doctrines which they may think proper to propagate concerning such matters. As he
can seldom directly oppose their decision, therefore, with proper weight and authority,
it is necessary that he should be able to influence it; and he can influence it only by the
fears and expectations which he may excite in the greater part of the individuals of
the order. Those fears and expectations may consist in the fear of deprivation or other
punishment, and in the expectation of further preferment.

In all Christian churches, the benefices of the clergy are a sort of freeholds, which
they enjoy, not during pleasure, but during life or good behaviour. If they held them bya

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more precarious tenure, and were liable to be turned out upon every slight disobligation
either of the sovereign or of his ministers, it would perhaps be impossible for them to
maintain their authority with the people, who would then consider them as mercenary
dependents upon the court, in the sincerity of whose instructions they could no longer
have any confidence. But should the sovereign attempt irregularly, and by violence, to
deprive any number of clergymen of their freeholds, on account, perhaps, of their
having propagated, with more than ordinary zeal, some factious or seditious doctrine,
he would only render, by such persecution, both them and their doctrine ten times
more popular, and therefore ten times more troublesome and dangerous, than they
had been before. Fear is in almost all cases a wretched instrument of govermnent,
and ought in particular never to be employed against any order of men who have
the smallest pretensions to independency. To attempt to terrify them, serves only to
irritate their bad humour, and to confirm them in an opposition, which more gentle
usage, perhaps, might easily induce them either to soften, or to lay aside altogether.
The violence which the French government usually employed in order to oblige all
their parliaments, or sovereign courts of justice, to enregister any unpopular edict,
very seldom succeeded. The means commonly employed, however, the imprisonment
of all the refractory members, one would think, were forcible enough. The princes of
the house of Stuart sometimes employed the like means in order to influence some
of the members of the parliament of England, and they generally found them equally
intractable. The parliament of England 1s now managed in another manner; and a very
small experiment, which the duke of Choiseul made, about twelve years ago, upon
the parliament of Paris, demonstrated sufficiently that all the parliaments of France
might have been managed still more easily in the same manner. That experiment was
not pursued. For though management and persuasion are always the easiest and safest
instruments of governmentas force and violence are the worst and the most dangerous;
yet such, it seems, is the natural insolence of man, that he almost always disdains to use
the good instrument, except when he cannot or dare not use the bad one. The French
government could and durst use force, and therefore disdained to use management and
persuasion. But there is no order of men, it appears | believe, from the experience of
all ages, upon whom it is so dangerous or rather so perfectly ruinous, to employ force
and violence, as upon the respected clergy of an established church. The rights, the
privileges, the personal liberty of every individual ecclesiastic, who is upon good terms
with his own order, are, even in the most despotic governments, more respected than
those of any other person of nearly equal rank and fortune. It is so in every gradation
of despotism, from that of the gentle and mild government of Paris, to that of the
violent and furious government of Constantinople. But though this order of men can
scarce ever be forced, they may be managed as easily as any other; and the security of
the sovereign, as well as the public tranquillity, seems to depend very much upon the
means which he has of managing them; and those means seem to consist altogether in
the preferment which he has to bestow upon them.

In the ancient constitution of the Christian church, the bishop of each diocese

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was elected by the joint votes of the clergy and of the people of the episcopal city.
The people did not long retain their right of election; and while they did retain it, they
almost always acted under the influence of the clergy, who, in such spiritual matters,
appeared to be their natural guides. The clergy, however, soon grew weary of the trouble
of managing them, and found it easier to elect their own bishops themselves. The
abbot, in the same manner, was elected by the monks of the monastery, at least in the
greater part of abbacies. All the inferior ecclesiastical benefices comprehended within
the diocese were collated by the bishop, who bestowed them upon such ecclesiastics
as he thought proper. All church preferments were in this manner in the disposal of
the church. The sovereign, though he might have some indirect influence in those
elections, and though it was sometimes usual to ask both his consent to elect, and his
approbation of the election, yet had no direct or sufficient means of managing the
clergy. The ambition of every clergyman naturally led him to pay court, not so much to
his sovereign as to his own order, from which only he could expect preferment.

Through the greater part of Europe, the pope gradually drew to himself, first the
collation of almost all bishoprics and abbacies, or of what were called consistorial
benefices, and afterwards, by various machinations and pretences, of the greater part
of inferior benefices comprehended within each diocese, little more being left to the
bishop than what was barely necessary to give him a decent authority with his own
clergy. By this arrangement the condition of the sovereign was still worse than it had
been before. The clergy of all the different countries of Europe were thus formed into
a sort of spiritual army, dispersed in different quarters indeed, but of which all the
movements and operations could now be directed by one head, and conducted upon
one uniform plan. The clergy of each particular country might be considered as a
particular detachment of that army, of which the operations could easily be supported
and seconded by all the other detachments quartered in the different countries round
about. Each detachment was not only independent of the sovereign of the country in
which it was quartered, and by which it was maintained, but dependent upon a foreign
sovereign, who could at any time turn its arms against the sovereign of that particular
country, and support them by the arms of all the other detachments.

Those arms were the most formidable that can well be imagined. In the ancient
state of Europe, before the establishment of arts and manufactures, the wealth of the
clergy gave them the same sort of influence over the common people which that of
the great barons gave them over their respective vassals, tenants, and retainers. In the
great landed estates, which the mistaken piety both of princes and private persons had
bestowed upon the church, jurisdictions were established, of the same kind with those
of the great barons, and for the same reason. In those great landed estates, the clergy, or
their bailiffs, could easily keep the peace, without the support or assistance either of the
king ot of any other person; and neither the king nor any other person could keep the
peace there without the support and assistance of the clergy. The jurisdictions of the
clergy, therefore, in their particular baronies or manors, were equally independent, and
equally exclusive of the authority of the king’s courts, as those of the great temporal

ADAM SMITH

lords. The tenants of the clergy were, like those of the great barons, almost all tenants
at will, entirely dependent upon their immediate lords, and, therefore, liable to be called
out at pleasure, in order to fight in any quarrel in which the clergy might think proper
to engage them. Over and above the rents of those estates, the clergy possessed in the
tithes a very large portion of the rents of all the other estates in every kingdom of
Europe. The revenues arising from both those species of rents were, the greater part of
them, paid in kind, in corn, wine, cattle, poultry, etc. The quantity exceeded greatly what
the clergy could themselves consume; and there were neither arts nor manufactures,
for the produce of which they could exchange the surplus. The clergy could derive
advantage from this immense surplus in no other way than by employing it, as the great
barons employed the like surplus of their revenues, in the most profuse hospitality, and
in the most extensive charity. Both the hospitality and the charity of the ancient clergy,
accordingly, are said to have been very great. They not only maintained almost the
whole poor of every kingdom, but many knights and gentlemen had frequently no other
means of subsistence than by travelling about from monastery to monastery, under
pretence of devotion, but in reality to enjoy the hospitality of the clergy. The retainers
of some particular prelates were often as numerous as those of the greatest lay-lords;
and the retainers of all the clergy taken together were, perhaps, more numerous than
those of all the lay-lords. There was always much more union among the clergy than
among the lay-lords. The former were under a regular discipline and subordination to
the papal authority. The latter were under no regular discipline or subordination, but
almost always equally jealous of one another, and of the king. Though the tenants and
retainers of the clergy, therefore, had both together been less numerous than those of
the great lay-lords, and their tenants were probably much less numerous, yet their union
would have rendered them more formidable. The hospitality and charity of the clergy,
too, not only gave them the command of a great temporal force, but increased very
much the weight of their spiritual weapons. Those virtues procured them the highest
respect and veneration among all the inferior ranks of people, of whom many were
constantly, and almost all occasionally, fed by them. Everything belonging or related to
so popular an order, its possessions, its privileges, its doctrines, necessarily appeared
sacred in the eyes of the common people; and every violation of them, whether real or
pretended, the highest act of sacrilegious wickedness and profaneness. In this state of
things, if the sovereign frequently found it difficult to resist the confederacy of a few
of the great nobility, we cannot wonder that he should find it still more so to resist the
united force of the clergy of his own dominions, supported by that of the clergy of
all the neighbouring dominions. In such circumstances, the wonder is, not that he was
sometimes obliged to yield, but that he ever was able to resist.

The privileges of the clergy in those ancient times (which to us, who live in
the present times, appear the most absurd), their total exemption from the secular
jurisdiction, for example, or what in England was called the benefit of clergy, were the
natural, or rather the necessary, consequences of this state of things. How dangerous
must it have been for the sovereign to attempt to punish a clergyman for any crime

THE WEALTH OF NATIONS

whatever, if his order were disposed to protect him, and to represent either the proof
as insufficient for convicting so holy a man, or the punishment as too severe to be
inflicted upon one whose person had been rendered sacred by religion? The sovereign
could, in such circumstances, do no better than leave him to be tried by the ecclesiastical
courts, who, for the honour of their own order, were interested to restrain, as much as
possible, every member of it from committing enormous crimes, or even from giving
occasion to such gross scandal as might disgust the minds of the people.

In the state in which things were, through the greater part of Europe, during the
tenth, eleventh, twelfth, and thirteenth centuries, and for some time both before and
after that period, the constitution of the church of Rome may be considered as the most
formidable combination that ever was formed against the authority and security of civil
government, as well as against the liberty, reason, and happiness of mankind, which
can flourish only where civil government is able to protect them. In that constitution,
the grossest delusions of superstition were supported in such a manner by the private
interests of so great a number of people, as put them out of all danger from any assault
of human reason; because, though human reason might, perhaps, have been able to
unveil, even to the eyes of the common people, some of the delusions of superstition,
it could never have dissolved the ties of private interest. Had this constitution been
attacked by no other enemies but the feeble efforts of human reason, it must have
endured for ever. But that immense and well-built fabric, which all the wisdom and
virtue of man could never have shaken, much less have overturned, was, by the natural
course of things, first weakened, and afterwards in part destroyed; and is now likely, in
the course of a few centuries more, perhaps, to crumble into ruins altogether.

The gradual improvements of arts, manufactures, and commerce, the same causes
which destroyed the power of the great barons, destroyed, in the same manner, through
the greater part of Europe, the whole temporal manufactures, and commerce, the
clergy, like the great barons, found something for which they could exchange their rude
produce, and thereby discovered the means of spending their whole revenues upon
their own persons, without giving any considerable share of them to other people. Their
charity became gradually less extensive, their hospitality less liberal, or less profuse.
Their retainers became consequently less numerous, and, by degrees, dwindled away
altogether. The clergy, too, like the great barons, wished to get a better rent from their
landed estates, in order to spend it, in the same manner, upon the gratification of their
own private vanity and folly. But this increase of rent could be got only by granting
leases to their tenants, who thereby became, in a great measure, independent of them.
The ties of interest, which bound the inferior ranks of people to the clergy, were in this
manner gradually broken and dissolved. They were even broken and dissolved sooner
than those which bound the same ranks of people to the great barons; because the
benefices of the church being, the greater part of them, much smaller than the estates
of the great barons, the possessor of each benefice was much sooner able to spend the
whole of its revenue upon his own person. During the greater part of the fourteenth
and fifteenth centuries, the power of the great barons was, through the greater part of

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Europe, in full vigour. But the temporal power of the clergy, the absolute command
which they had once had over the great body of the people was very much decayed. The
power of the church was, by that time, very nearly reduced, through the greater part of
Europe, to what arose from their spiritual authority; and even that spiritual authority
was much weakened, when it ceased to be supported by the charity and hospitality of
the clergy. The inferior ranks of people no longer looked upon that order as they had
done before; as the comforters of their distress, and the relievers of their indigence.
On the contrary, they were provoked and disgusted by the vanity, luxury, and expense
of the richer clergy, who appeared to spend upon their own pleasures what had always
before been regarded as the patrimony of the poor.

In this situation of things, the sovereigns in the different states of Europe
endeavoured to recover the influence which they had once had in the disposal of the
great benefices of the church; by procuring to the deans and chapters of each diocese
the restoration of their ancient right of electing the bishop; and to the monks of each
abbacy that of electing the abbot. The re-establishing this ancient order was the object
of several statutes enacted in England during the course of the fourteenth century,
particularly of what is called the statute of provisors; and of the pragmatic sanction,
established in France in the fifteenth century. In order to render the election valid, it
was necessary that the sovereign should both consent to it before hand, and afterwards
approve of the person elected; and though the election was still supposed to be free,
he had, however all the indirect means which his situation necessarily afforded him, of
influencing the clergy in his own dominions. Other regulations, of a similar tendency,
were established in other parts of Europe. But the power of the pope, in the collation
of the great benefices of the church, seems, before the reformation, to have been
nowhere so effectually and so universally restrained as in France and England. The
concordat afterwards, in the sixteenth century, gave to the kings of France the absolute
right of presenting to all the great, or what are called the consistorial, benefices of the
Gallican church.

Since the establishment of the pragmatic sanction and of the concordat, the clergy
of France have in general shewn less respect to the decrees of the papal court, than
the clergy of any other catholic country. In all the disputes which their sovereign
has had with the pope, they have almost constantly taken part with the former. This
independency of the clergy of France upon the court of Rome seems to be principally
founded upon the pragmatic sanction and the concordat. In the earlier periods of the
monarchy, the clergy of France appear to have been as much devoted to the pope as
those of any other country. When Robert, the second prince of the Capetian race,
was most unjustly excommunicated by the court of Rome, his own servants, it is said,
threw the victuals which came from his table to the dogs, and refused to taste any
thing themselves which had been polluted by the contact of a person in his situation.
They were taught to do so, it may very safely be presumed, by the clergy of his own
dominions.

The claim of collating to the great benefices of the church, a claim in defence

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of which the court of Rome had frequently shaken, and sometimes overturned, the
thrones of some of the greatest sovereigns in Christendom, was in this manner either
restrained or modified, or given up altogether, in many different parts of Europe, even
before the time of the reformation. As the clergy had now less influence over the
people, so the state had more influence over the clergy. The clergy, therefore, had both
less power, and less inclination, to disturb the state.

The authority of the church of Rome was in this state of declension, when the
disputes which gave birth to the reformation began in Germany, and soon spread
themselves through every part of Europe. The new doctrines were everywhere received
with a high degree of popular favour. They were propagated with all that enthusiastic
zeal which commonly animates the spirit of party, when it attacks established authority.
The teachers of those doctrines, though perhaps, in other respects, not more learned
than many of the divines who defended the established church, seem in general to have
been better acquainted with ecclesiastical history, and with the origin and progress of
that system of opinions upon which the authority of the church was established; and
they had thereby the advantage in almost every dispute. The austerity of their manners
gave them authority with the common people, who contrasted the strict regularity of
their conduct with the disorderly lives of the greater part of their own clergy. They
possessed, too, in a much higher degree than their adversaries, all the arts of popularity
and of gaining proselytes; arts which the lofty and dignified sons of the church had
long neglected, as being to them in a great measure useless. The reason of the new
doctrines recommended them to some, their novelty to many; the hatred and contempt
of the established clergy to a still greater number: but the zealous, passionate, and
fanatical, though frequently coarse and rustic eloquence, with which they were almost
everywhere inculcated, recommended them to by far the greatest number.

The success of the new doctrines was almost everywhere so great, that the princes,
who at that time happened to be on bad terms with the court of Rome, were, by means
of them, easily enabled, in their own dominions, to overturn the church, which having
lost the respect and veneration of the inferior ranks of people, could make scarce
any resistance. The court of Rome had disobliged some of the smaller princes in the
northern parts of Germany, whom it had probably considered as too insignificant
to be worth the managing. They universally, therefore, established the reformation
in their own dominions. The tyranny of Christiern II., and of Troll archbishop of
Upsal, enabled Gustavus Vasa to expel them both from Sweden. The pope favoured
the tyrant and the archbishop, and Gustavus Vasa found no difficulty in establishing
the reformation in Sweden. Christiern II. was afterwards deposed from the throne of
Denmark, where his conduct had rendered him as odious as in Sweden. The pope,
however, was still disposed to favour him; and Frederic of Holstein, who had mounted
the throne in his stead, revenged himself, by following the example of Gustavus Vasa.
The magistrates of Berne and Zurich, who had no particular quarrel with the pope,
established with great ease the reformation in their respective cantons, where just before
some of the clergy had, by an imposture somewhat grosser than ordinary, rendered the

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whole order both odious and contemptible.

In this critical situation of its affairs the papal court was at sufficient pains to
cultivate the friendship of the powerful sovereigns of France and Spain, of whom
the latter was at that time emperor of Germany. With their assistance, it was enabled,
though not without great difficulty, and much bloodshed, either to suppress altogether,
or to obstruct very much, the progress of the reformation in their dominions. It
was well enough inclined, too, to be complaisant to the king of England. But from
the circumstances of the times, it could not be so without giving offence to a still
greater sovereign, Charles V., king of Spain and emperor of Germany. Henry VUL.,
accordingly, though he did not embrace himself the greater part of the doctrines
of the reformation, was yet enabled, by their general prevalence, to suppress all the
monasteries, and to abolish the authority of the church of Rome in his dominions.
That he should go so far, though he went no further, gave some satisfaction to the
patrons of the reformation, who, having got possession of the government in the reign
of his son and successor completed, without any difficulty, the work which Henry VIII.
had begun.

In some countries, as in Scotland, where the government was weak, unpopular, and
not very firmly established, the reformation was strong enough to overturn, not only
the church, but the state likewise, for attempting to support the church.

Among the followers of the reformation, dispersed in all the different countries
of Europe, there was no general tribunal, which, like that of the court of Rome, or
an oecumenical council, could settle all disputes among them, and, with irresistible
authority, prescribe to all of them the precise limits of orthodoxy. When the followers
of the reformation in one country, therefore, happened to differ from their brethren in
another, as they had no common judge to appeal to, the dispute could never be decided;
and many such disputes arose among them. Those concerning the government of the
church, and the right of conferring ecclesiastical benefices, were perhaps the most
interesting to the peace and welfare of civil society. They gave birth, accordingly, to the
two principal parties or sects among the followers of the reformation, the Lutheran
and Calvinistic sects, the only sects among them, of which the doctrine and discipline
have ever yet been established by law in any part of Europe.

The followers of Luther, together with what is called the church of England,
preserved more or less of the episcopal government, established subordination among
the clergy, gave the sovereign the disposal of all the bishoprics, and other consistorial
benefices within his dominions, and thereby rendered him the real head of the church;
and without depriving the bishop of the right of collating to the smaller benefices
within his diocese, they, even to those benefices, not only admitted, but favoured the
right of presentation, both in the sovereign and in all other lay patrons. This system
of church government was, from the beginning, favourable to peace and good order,
and to submission to the civil sovereign. It has never, accordingly, been the occasion
of any tumult or civil commotion in any country in which it has once been established.
The church of England, in particular, has always valued herself, with great reason,

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upon the unexceptionable loyalty of her principles. Under such a government, the
clergy naturally endeavour to recommend themselves to the sovereign, to the court,
and to the nobility and gentry of the country, by whose influence they chiefly expect
to obtain preferment. They pay court to those patrons, sometimes, no doubt, by the
vilest flattery and assentation; but frequently, too, by cultivating all those arts which best
deserve, and which are therefore most likely to gain them, the esteem of people of rank
and fortune; by their knowledge in all the different branches of useful and ornamental
learning, by the decent liberality of their manners, by the social good humour of their
conversation, and by their avowed contempt of those absurd and hypocritical austerities
which fanatics inculcate and pretend to practise, in order to draw upon themselves the
veneration, and upon the greater part of men of rank and fortune, who avow that they
do not practise them, the abhorrence of the common people. Such a clergy, however,
while they pay their court in this manner to the higher ranks of life, are very apt to
neglect altogether the means of maintaining their influence and authority with the
lower. They are listened to, esteemed, and respected by their superiors; but before their
inferiors they are frequently incapable of defending, effectually, and to the conviction
of such hearers, their own sober and moderate doctrines, against the most ignorant
enthusiast who chooses to attack them.

The followers of Zuinglius, or more properly those of Calvin, on the contrary,
bestowed upon the people of each parish, whenever the church became vacant, the
right of electing their own pastor; and established, at the same time, the most perfect
equality among the clergy. The former part of this institution, as long as it remained in
vigour, seems to have been productive of nothing but disorder and confusion, and to
have tended equally to corrupt the morals both of the clergy and of the people. The
latter part seems never to have had any effects but what were perfectly agreeable.

As long as the people of each parish preserved the right of electing their own
pastors, they acted almost always under the influence of the clergy, and generally of the
most factious and fanatical of the order. The clergy, in order to preserve their influence
in those popular elections, became, or affected to become, many of them, fanatics
themselves, encouraged fanaticism among the people, and gave the preference almost
always to the most fanatical candidate. So small a matter as the appointment of a parish
priest, occasioned almost always a violent contest, not only in one parish, but in all the
neighbouring parishes who seldom failed to take part in the quarrel. When the parish
happened to be situated in a great city, it divided all the inhabitants into two parties; and
when that city happened, either to constitute itself a little republic, or to be the head
and capital of a little republic, as in the case with many of the considerable cities in
Switzerland and Holland, every paltry dispute of this kind, over and above exasperating
the animosity of all their other factions, threatened to leave behind it, both a new
schism in the church, and a new faction in the state. In those small republics, therefore,
the magistrate very soon found it necessary, for the sake of preserving the public peace,
to assume to himself the right of presenting to all vacant benefices. In Scotland, the
most extensive country in which this presbyterian form of church government has

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ever been established, the rights of patronage were in effect abolished by the act which
established presbytery in the beginning of the reign of William III. That act, at least,
put in the power of certain classes of people in each parish to purchase, for a very small
price, the right of electing their own pastor. The constitution which this act established,
was allowed to subsist for about two-and-twenty years, but was abolished by the 10th
of queen Anne, ch.12, on account of the confusions and disorders which this more
popular mode of election had almost everywhere occasioned. In so extensive a country
as Scotland, however, a tumult in a remote parish was not so likely to give disturbance
to government as in a smaller state. The 10th of queen Anne restored the rights of
patronage. But though, in Scotland, the law gives the benefice, without any exception
to the person presented by the patron; yet the church requires sometimes (for she has
not in this respect been very uniform in her decisions) a certain concurrence of the
people, before she will confer upon the presentee what is called the cure of souls, or
the ecclesiastical jurisdiction in the parish. She sometimes, at least, from an affected
concern for the peace of the parish, delays the settlement till this concurrence can be
procured. The private tampering of some of the neighbouring clergy, sometimes to
procure, but more frequently to prevent this concurrence, and the popular arts which
they cultivate, in order to enable them upon such occasions to tamper more effectually,
are perhaps the causes which principally keep up whatever remains of the old fanatical
spirit, either in the clergy or in the people of Scotland.

The equality which the presbyterian form of church government establishes among
the clergy, consists, first, in the equality of authority or ecclesiastical jurisdiction; and,
secondly, in the equality of benefice. In all presbyterian churches, the equality of
authority is perfect; that of benefice is not so. The difference, however, between one
benefice and another, is seldom so considerable, as commonly to tempt the possessor
even of the small one to pay court to his patron, by the vile arts of flattery and
assentation, in order to get a better. In all the presbyterian churches, where the rights of
patronage are thoroughly established, it is by nobler and better arts, that the established
clergy in general endeavour to gain the favour of their superiors; by their learning, by
the irreproachable regularity of their life, and by the faithful and diligent discharge
of their duty. Their patrons even frequently complain of the independency of their
spirit, which they are apt to construe into ingratitude for past favours, but which, at
worse, perhaps, is seldom anymore than that indifference which naturally arises from
the consciousness that no further favours of the kind are ever to be expected. There is
scarce, perhaps, to be found anywhere in Europe, a more learned, decent, independent,
and respectable set of men, than the greater part of the presbyterian clergy of Holland,
Geneva, Switzerland, and Scotland.

Where the church benefices are all nearly equal, none of them can be very
great; and this mediocrity of benefice, though it may be, no doubt, carried too far,
has, however, some very agreeable effects. Nothing but exemplary morals can give
dignity to a man of small fortune. The vices of levity and vanity necessarily render him
ridiculous, and are, besides, almost as ruinous to him as they are to the common people.

583

In his own conduct, therefore, he is obliged to follow that system of morals which the
common people respect the most. He gains their esteem and affection, by that plan
of life which his own interest and situation would lead him to follow. The common
people look upon him with that kindness with which we naturally regard one who
approaches somewhat to our own condition, but who, we think, ought to be ina higher.
Their kindness naturally provokes his kindness. He becomes careful to instruct them,
and attentive to assist and relieve them. He does not even despise the prejudices of
people who are disposed to be so favourable to him, and never treats them with those
contemptuous and arrogant airs, which we so often meet with in the proud dignitaries
of opulent and well endowed churches. The presbyterian clergy, accordingly, have more
influence over the minds of the common people, than perhaps the clergy of any other
established church. It is, accordingly, in presbyterian countries only, that we ever find
the common people converted, without persecution completely, and almost to a man,
to the established church.

In countries where church benefices are, the greater part of them, very moderate,
a chair in a university is generally a better establishment than a church benefice. The
universities have, in this case, the picking and chusing of their members from all the
churchmen of the country, who, in every country, constitute by far the most numerous
class of men of letters. Where church benefices, on the contrary, are many of them
very considerable, the church naturally draws from the universities the greater part
of their eminent men of letters; who generally find some patron, who does himself
honour by procuring them church preferment. In the former situation, we ate likely to
find the universities filled with the most eminent men of letters that are to be found in
the country. In the latter, we are likely to find few eminent men among them, and those
few among the youngest members of the society, who are likely, too, to be drained
away from it, before they can have acquired experience and knowledge enough to be
of much use to it. It is observed by Mr. de Voltaire, that father Porée, a jesuit of no
great eminence in the republic of letters, was the only professor they had ever had
in France, whose works were worth the reading. In a country which has produced so
many eminent men of letters, it must appear somewhat singular, that scarce one of
them should have been a professor in a university. The famous Cassendi was, in the
beginning of his life, a professor in the university of Aix. Upon the first dawning of his
genius, it was represented to him, that by going into the church he could easily find a
much more quiet and comfortable subsistence, as well as a better situation for pursuing
his studies; and he immediately followed the advice. The observation of Mr. de Voltaire
may be applied, I believe, not only to France, but to all other Roman Catholic countries.
We very rarely find in any of them an eminent man of letters, who is a professor in a
university, except, perhaps, in the professions of law and physic; professions from which
the church is not so likely to draw them. After the church of Rome, that of England is
by far the richest and best endowed church in Christendom. In England, accordingly,
the church is continually draining the universities of all their best and ablest members;
and an old college tutor who is known and distinguished in Europe as an eminent man

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ADAM SMITH

of letters, is as rarely to be found there as in any Roman catholic country, In Geneva,
on the contrary, in the protestant cantons of Switzerland, in the protestant countries
of Germany, in Holland, in Scotland, in Sweden, and Denmark, the most eminent men
of letters whom those countries have produced, have, not all indeed, but the far greater
part of them, been professors in universities. In those countries, the universities are
continually draining the church of all its most eminent men of letters.

It may, perhaps, be worth while to remark, that, if we except the poets, a few orators,
and a few historians, the far greater part of the other eminent men of letters, both of
Greece and Rome, appear to have been either public or private teachers; generally either
of philosophy or of rhetoric. This remark will be found to hold true, from the days of
Lysias and Isocrates, of Plato and Aristotle, down to those of Plutarch and Epictetus,
Suetonius, and Quintilian. To impose upon any man the necessity of teaching, year
after year, in any particular branch of science seems in reality to be the most effectual
method for rendering him completely master of it himself. By being obliged to go
every year over the same ground, if he is good for any thing, he necessarily becomes,
in a few years, well acquainted with every part of it, and if, upon any particular point,
he should form too hasty an opinion one year, when he comes, in the course of his
lectures to reconsider the same subject the year thereafter, he is very likely to correct
it. As to be a teacher of science is certainly the natural employment of a mere man of
letters; so is it likewise, perhaps, the education which is most likely to render him a man
of solid learning and knowledge. The mediocrity of church benefices naturally tends
to draw the greater part of men of letters in the country where it takes place, to the
employment in which they can be the most useful to the public, and at the same time to
give them the best education, perhaps, they are capable of receiving. It tends to render
their learning both as solid as possible, and as useful as possible.

The revenue of every established church, such parts of it excepted as may arise
from particular lands or manors, is a branch, it ought to be observed, of the general
revenue of the state, which is thus diverted to a purpose very different from the defence
of the state. The tithe, for example, is a real land tax, which puts it out of the power
of the proprietors of land to contribute so largely towards the defence of the state as
they otherwise might be able to do. The rent of land, however, is, according to some,
the sole fund; and, according to others, the principal fund, from which, in all great
monarchies, the exigencies of the state must be ultimately supplied. The more of this
fund that is given to the church, the less, it 1s evident, can be spared to the state. It may
be laid down as a certain maxim, that all other things being supposed equal, the richer
the church, the poorer must necessarily be, either the sovereign on the one hand, or the
people on the other; and, in all cases, the less able must the state be to defend itself. In
several protestant countries, particularly in all the protestant cantons of Switzerland,
the revenue which anciently belonged to the Roman catholic church, the tithes and
church lands, has been found a fund sufficient, not only to afford competent salaries
to the established clergy, but to defray, with little or no addition, all the other expenses
of the state. The magistrates of the powerful canton of Berne, in particular, have

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THE WEALTH OF NATIONS

accumulated, out of the savings from this fund, a very large sum, supposed to amount
to several millions; part or which is deposited in a public treasure, and part is placed
at interest in what are called the public funds of the different indebted nations of
Europe; chiefly in those of France and Great Britain. What may be the amount of the
whole expense which the church, either of Berne, or of any other protestant canton,
costs the state, | do not pretend to know. By a very exact account it appears, that, in
1755, the whole revenue of the clergy of the chutch of Scotland, including their glebe
ot church lands, and the rent of their manses or dwelling-houses, estimated according
to a reasonable valuation, amounted only to £68,514:1:5 1/12d. This very moderate
revenue affords a decent subsistence to nine hundred and forty-four ministers. The
whole expense of the church, including what is occasionally laid out for the building
and reparation of churches, and of the manses of ministers, cannot well be supposed
to exceed eighty or eighty-five thousand pounds a-year. The most opulent church in
Christendom does not maintain better the uniformity of faith, the fervour of devotion,
the spirit of order, regularity, and austere morals, in the great body of the people, than
this very poorly endowed church of Scotland. All the good effects, both civil and
religious, which an established church can be supposed to produce, are produced by it as
completely as by any other. The greater part of the protestant churches of Switzerland,
which, in general, are not better endowed than the church of Scotland, produce those
effects in a still higher degree. In the greater part of the protestant cantons, there is
not a single person to be found, who does not profess himself to be of the established
church. If he professes himself to be of any other, indeed, the law obliges him to leave
the canton. But so severe, or, rather, indeed, so oppressive a law, could never have
been executed in such free countries, had not the diligence of the clergy beforehand
converted to the established church the whole body of the people, with the exception
of, perhaps, a few individuals only. In some parts of Switzerland, accordingly, where,
from the accidental union of a protestant and Roman catholic country, the conversion
has not been so complete, both religions are not only tolerated, but established by law.

The proper performance of every service seems to require, that its pay or
recompence should be, as exactly as possible, proportioned to the nature of the
service. If any service is very much underpaid, it is very apt to suffer by the meanness
and incapacity of the greater part of those who are employed in it. If it is very much
overpaid, it is apt to suffer, perhaps still more, by their negligence and idleness. A man
of a large revenue, whatever may be his profession, thinks he ought to live like other
men of large revenues; and to spend a great part of his time in festivity, in vanity, and
in dissipation. But in a clergyman, this train of life not only consumes the time which
ought to be employed in the duties of his function, but in the eyes of the common
people, destroys almost entirely that sanctity of character, which can alone enable him
to perform those duties with proper weight and authority.

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ADAM SMITH

PART IV.

Of the Expense of supporting the Dignity of the Sovereign.

Over and above the expenses necessary for enabling the sovereign to perform his
several duties, a certain expense is requisite for the support of his dignity. This expense
varies, both with the different periods of improvement, and with the different forms
of government.

In an opulent and improved society, where all the different orders of people are
growing every day more expensive in their houses, in their furniture, in their tables,
in their dress, and in their equipage; it cannot well be expected that the sovereign
should alone hold out against the fashion. He naturally, therefore, or rather necessarily,
becomes more expensive in all those different articles too. His dignity even seems to
require that he should become so.

As, in point of dignity, a monarch is more raised above his subjects than the chief
magistrate of any republic is ever supposed to be above his fellow-citizens; so a greater
expense is necessary for supporting that higher dignity. We naturally expect more
splendour in the court of a king, than in the mansion-house of a doge or burgo-master.

CONCLUSION.

The expense of defending the society, and that of supporting the dignity of
the chief magistrate, are both laid out for the general benefit of the whole society.
It is reasonable, therefore, that they should be defrayed by the general contribution
of the whole society; all the different members contributing, as nearly as possible, in
proportion to their respective abilities.

The expense of the administration of justice, too, may no doubt be considered
as laid out for the benefit of the whole society. There is no impropriety, therefore,
in its being defrayed by the general contribution of the whole society. The persons,
however, who give occasion to this expense, are those who, by their injustice in one
way ot another, make it necessary to seek redress or protection from the courts of
justice. The persons, again, most immediately benefited by this expense, are those
whom the courts of justice either restore to their rights, or maintain in their rights.
The expense of the administration of justice, therefore, may very properly be defrayed
by the particular contribution of one or other, ot both, of those two different sets of
persons, according as different occasions may require, that is, by the fees of court. It
cannot be necessary to have recourse to the general contribution of the whole society,

Boi:

THE WEALTH OF NATIONS

except for the conviction of those criminals who have not themselves any estate or
fund sufficient for paying those fees.

Those local or provincial expenses, of which the benefit is local or provincial (what
is laid out, for example, upon the police of a particular town or district), ought to be
defrayed by a local or provincial revenue, and ought to be no burden upon the general
revenue of the society. It is unjust that the whole society should contribute towards an
expense, of which the benefit is confined to a part of the society.

The expense of maintaining good roads and communications is, no doubt,
beneficial to the whole society, and may, therefore, without any injustice, be defrayed
by the general contributions of the whole society. This expense, however, is most
immediately and directly beneficial to those who travel or carry goods from one place
to another, and to those who consume such goods. The turnpike tolls in England, and
the duties called peages in other countries, lay it altogether upon those two different
sets of people, and thereby discharge the general revenue of the society from a very
considerable burden.

The expense of the institutions for education and religious instruction, is likewise,
no doubt, beneficial to the whole society, and may, therefore, without injustice, be
defrayed by the general contribution of the whole society. This expense, however, might,
perhaps, with equal propriety, and even with some advantage, be defrayed altogether
by those who receive the immediate benefit of such education and instruction, or by
the voluntary contribution of those who think they have occasion for either the one
or the other.

When the institutions, or public works, which are beneficial to the whole society,
either cannot be maintained altogether, or are not maintained altogether, by the
contribution of such particular members of the society as are most immediately
benefited by them; the deficiency must, in most cases, be made up by the general
contribution of the whole society. The general revenue of the society, over and above
defraying the expense of defending the society, and of supporting the dignity of the
chief magistrate, must make up for the deficiency of many particular branches of
revenue. The sources of this general or public revenue, I shall endeavour to explain in
the following chapter.

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ADAM SMITH

CHAPTER II.

OF THE SOURCES OF THE
GENERAL OR PUBLIC
REVENUE OF THE SOCIETY.

he revenue which must defray, not only the expense of defending the society

and of supporting the dignity of the chief magistrate, but all the other necessary
expenses of government, for which the constitution of the state has not provided any
particular revenue may be drawn, either, first, from some fund which peculiarly belongs
to the sovereign or commonwealth, and which is independent of the revenue of the
people; or, secondly, from the revenue of the people.

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THE WEALTH OF NATIONS

PART I.

Of the Funds, or Sources, of Revenue, which may peculiarly belong to the
Sovereign or Commonwealth.

The funds, or sources, of revenue, which may peculiarly belong to the sovereign or
commonwealth, must consist, either in stock, or in land.

The sovereign, like, any other owner of stock, may derive a revenue from it, either
by employing it himself, or by lending it. His revenue is, in the one case, profit, in the
other interest.

The revenue of a Tartar or Arabian chief consists in profit. It arises principally from
the milk and increase of his own herds and flocks, of which he himself superintends
the management, and is the principal shepherd or herdsman of his own horde or tribe.
It is, however, in this earliest and rudest state of civil government only, that profit has
ever made the principal part of the public revenue of a monarchical state.

Small republics have sometimes derived a considerable revenue from the profit of
mercantile projects. The republic of Hamburgh is said to do so from the profits of
a public wine-cellar and apothecary’s shop. {See Memoires concernant les Droits et
Impositions en Europe, tome i. page 73. This work was compiled by the order of the
court, for the use of a commission employed for some years past in considering the
proper means for reforming the finances of France. The account of the French taxes,
which takes up three volumes in quarto, may be regarded as perfectly authentic. That of
those of other European nations was compiled from such information as the French
ministers at the different courts could procure. It is much shorter, and probably not
quite so exact as that of the French taxes.} That state cannot be very great, of which the
sovereign has leisure to carry on the trade of a wine-merchant or an apothecary. The
profit of a public bank has been a source of revenue to more considerable states. It has
been so, not only to Hamburgh, but to Venice and Amsterdam. A revenue of this kind
has even by some people been thought not below the attention of so great an empire as
that of Great Britain. Reckoning the ordinary dividend of the bank of England at five
and a-half per cent., and its capital at ten millions seven hundred and eighty thousand
pounds, the neat annual profit, after paying the expense of management, must amount,
it is said, to five hundred and ninety-two thousand nine hundred pounds. Government,
it is pretended, could borrow this capital at three per cent. interest, and, by taking
the management of the bank into its own hands, might make a clear profit of two
hundred and sixty-nine thousand five hundred pounds a-year. The orderly, vigilant, and
parsimonious administration of such aristocracies as those of Venice and Amsterdam,
is extremely proper, it appears from experience, for the management of a mercantile
project of this kind. But whether such a government us that of England, which,

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ADAM SMITH

whatever may be its virtues, has never been famous for good economy; which, in time
of peace, has generally conducted itself with the slothful and negligent profusion that
is, perhaps, natural to monarchies; and, in time of war, has constantly acted with all the
thoughtless extravagance that democracies are apt to fall into, could be safely trusted
with the management of such a project, must at least be a good deal more doubtful.

The post-office is properly a mercantile project. The government advances the
expense of establishing the different offices, and of buying or hiring the necessary
horses or carriages, and is repaid, with a large profit, by the duties upon what is carried.
It is, perhaps, the only mercantile project which has been successfully managed by, I
believe, every sort of government. The capital to be advanced is not very considerable.
There is no mystery in the business. The returns are not only certain but immediate.

Princes, however, have frequently engaged in many other mercantile projects, and
have been willing, like private persons, to mend their fortunes, by becoming adventurers
in the common branches of trade. They have scarce ever succeeded. The profusion with
which the affairs of princes are always managed, renders it almost impossible that they
should. The agents of a prince regard the wealth of their master as inexhaustible; are
careless at what price they buy, are careless at what price they sell, are careless at what
expense they transport his goods from one place to another. Those agents frequently
live with the profusion of princes; and sometimes, too, in spite of that profusion, and
by a proper method of making up their accounts, acquire the fortunes of princes. It
was thus, as we are told by Machiavel, that the agents of Lorenzo of Medicis, not a
prince of mean abilities, carried on his trade. The republic of Florence was several
times obliged to pay the debt into which their extravagance had involved him. He
found it convenient, accordingly to give up the business of merchant, the business to
which his family had originally owed their fortune, and, in the latter part of his life, to
employ both what remained of that fortune, and the revenue of the state, of which he
had the disposal, in projects and expenses more suitable to his station.

No two characters seem more inconsistent than those of trader and sovereign. If
the trading spirit of the English East India company renders them very bad sovereigns,
the spirit of sovereignty seems to have rendered them equally bad traders. While they
were traders only, they managed their trade successfully, and were able to pay from
their profits a moderate dividend to the proprietors of their stock. Since they became
sovereigns, with a revenue which, it is said, was originally more than three millions
sterling, they have been obliged to beg the ordinary assistance of government, in
order to avoid immediate bankruptcy. In their former situation, their servants in India
considered themselves as the clerks of merchants; in their present situation, those
servants consider themselves as the ministers of sovereigns.

A state may sometimes derive some part of its public revenue from the interest of
money, as well as from the profits of stock. If it has amassed a treasure, it may lend a
part of that treasure, either to foreign states, or to its own subjects. 7

The canton of Berne derives a considerable revenue by lending a part of its
treasure to foreign states, that is, by placing it in the public funds of the different

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THE WEALTH OF NATIONS

indebted nations of Europe, chiefly in those of France and England. The security of
this revenue must depend, first, upon the security of the funds in which it is placed,
or upon the good faith of the government which has the management of them; and,
secondly, upon the certainty or probability of the continuance of peace with the debtor
nation. In the case of a wat, the very first act of hostility on the part of the debtor
nation might be the forfeiture of the funds of its credit. This policy of lending money
to foreign states is, so far as I know peculiar to the canton of Berne.

The city of Hamburgh {See Memoire concernant les Droites et Impositions en
Europe tome i p. 73.}has established a sort of public pawn-shop, which lends money
to the subjects of the state, upon pledges, at six per cent. interest. This pawn-shop, or
lombard, as it is called, affords a revenue, it is pretended, to the state, of a hundred
and fifty thousand crowns, which, at four and sixpence the crown, amounts to £29,150
sterling.

The government of Pennsylvania, without amassing any treasure, invented a
method of lending, not money, indeed, but what is equivalent to money, to its subjects.
By advancing to private people, at interest, and upon land security to double the value,
paper bills of credit, to be redeemed fifteen years after their date; and, in the mean
time, made transferable from hand to hand, like banknotes, and declared by act of
assembly to be a legal tender in all payments from one inhabitant of the province to
another, it raised a moderate revenue, which went a considerable way towards defraying
an annual expense of about £4,500, the whole ordinary expense of that frugal and
orderly government. The success of an expedient of this kind must have depended
upon three different circumstances: first, upon the demand for some other instrument
of commerce, besides gold and silver money, or upon the demand for such a quantity
of consumable stock as could not be had without sending abroad the greater part of
their gold and silver money, in order to purchase it; secondly, upon the good credit of
the government which made use of this expedient; and, thirdly, upon the moderation
with which it was used, the whole value of the paper bills of credit never exceeding
that of the gold and silver money which would have been necessary for carrying on
their circulation, had there been no paper bills of credit. The same expedient was,
upon different occasions, adopted by several other American colonies; but, from want
of this moderation, it produced, in the greater part of them, much more disorder than
conveniency.

The unstable and perishable nature of stock and credit, however, renders them
unfit to be trusted to as the principal funds of that sure, steady, and permanent revenue,
which can alone give security and dignity to government. The government of no great
nation, that was advanced beyond the shepherd state, seems ever to have derived the
greater part of its public revenue from such sources.

Land is a fund of more stable and permanent nature; and the rent of public lands,
accordingly, has been the principal source of the public revenue of many a great nation
that was much advanced beyond the shepherd state. From the produce or rent of the
public lands, the ancient republics of Greece and Italy derived for a long the the greater

592

ADAM SMITH

part of that revenue which defrayed the necessary expenses of the commonwealth.
The rent of the crown lands constituted for a long time the greater part of the revenue
of the ancient sovereigns of Europe.

War, and the preparation for war, are the two circumstances which, in modern
times, occasion the greater part of the necessary expense or all great states. But in the
ancient republics of Greece and Italy, every citizen was a soldier, and both served, and
prepared himself for service, at his own expense. Neither of those two circumstances,
therefore, could occasion any very considerable expense to the state. The rent of a vety
moderate landed estate might be fully sufficient for defraying all the other necessary
expenses of government.

In the ancient monarchies of Europe, the manners and customs of the time
sufficiently prepared the great body of the people for war; and when they took the
field, they were, by the condition of their feudal tenures, to be maintained either at
their own expense, or at that of their immediate lords, without bringing any new charge
upon the sovereign. The other expenses of government were, the greater part of them,
very moderate. The administration of justice, it has been shewn, instead of being a
cause of expense was a source of revenue. The labour of the country people, for
three days before, and for three days after, harvest, was thought a fund sufficient for
making and maintaining all the bridges, highways, and other public works, which the
commerce of the country was supposed to require. In those days the principal expense
of the sovereign seems to have consisted in the maintenance of his own family and
household. The officers of his household, accordingly, were then the great officers
of state. The lord treasurer received his rents. The lord steward and lord chamberlain
looked after the expense of his family. The care of his stables was committed to the
lord constable and the lord marshal. His houses were all built in the form of castles,
and seem to have been the principal fortresses which he possessed. The keepers of
those houses or castles might be considered as a sort of military governors. They seem
to have been the only military officers whom it was necessary to maintain in time of
peace. In these circumstances, the rent of a great landed estate might, upon ordinary
occasions, very well defray all the necessary expenses of government.

In the present state of the greater part of the civilized monarchies of Europe,
the rent of all the lands in the country, managed as they probably would be, if they all
belonged to one proprietor, would scarce, perhaps, amount to the ordinary revenue
which they levy upon the people even in peaceable times. The ordinary revenue of
Great Britain, for example, including not only what is necessary for defraying the
current expense of the year, but for paying the interest of the public debts, and for
sinking a part of the capital of those debts, amounts to upwards of ten millions a-year.
But the land tax, at four shillings in the pound, falls short of two millions a-year. This
land tax, as it is called however, is supposed to be one-fifth, not only of the rent of
all the land, but of that of all the houses, and of the interest of all the capital stock
of Great Britain, that part of it only excepted which is either lent to the public, or
employed as farming stock in the cultivation of land. A very considerable part of the

oy fe)

THE WEALTH OF NATIONS —,,r—C‘CiéCO«w#

produce of this tax arises from the rent of houses and the interest of capital stock. The
land tax of the city of London, for example, at four shillings in the pound, amounts
to £123,399: 6: 7; that of the city of Westminster to £63,092: 1: 5; that of the palaces
of Whitehall and St. James’s, to £30,754: 6: 3. A certain proportion of the land tax
is, in the same manner, assessed upon all the other cities and towns corporate in the
kingdom; and arises almost altogether, either from the rent of houses, or from what ts
supposed to be the interest of trading and capital stock. According to the estimation,
therefore, by which Great Britain is rated to the land tax, the whole mass of revenue
arising from the rent of all the lands, from that of all the houses, and from the interest
of all the capital stock, that part of it only excepted which is either lent to the public,
or employed in the cultivation of land, does not exceed ten millions sterling a-year, the
ordinary revenue which government levies upon the people, even in peaceable times.
The estimation by which Great Britain is rated to the land tax 1s, no doubt, taking
the whole kingdom at an average, very much below the real value; though in several
particular counties and districts it is said to be nearly equal to that value. The rent of
the lands alone, exclusive of that of houses and of the interest of stock, has by many
people been estimated at twenty millions; an estimation made in a great measure at
random, and which, I apprehend, is as likely to be above as below the truth. But if the
lands of Great Britain, in the present state of their cultivation, do not afford a rent of
more than twenty millions a-year, they could not well afford the half, most probably
not the fourth part of that rent, if they all belonged to a single proprietor, and were
put under the negligent, expensive, and oppressive management of his factors and
agents. The crown lands of Great Britain do not at present afford the fourth part of
the rent which could probably be drawn from them if they were the property of private
persons. If the crown lands were more extensive, it is probable, they would be still
worse managed.

The revenue which the great body of the people derives from land is, in proportion,
not to the rent, but to the produce of the land. The whole annual produce of the land
of every country, if we except what is reserved for seed, is either annually consumed
by the great body of the people, or exchanged for something else that is consumed by
them. Whatever keeps down the produce of the land below what it would otherwise
tise to, keeps down the revenue of the great body of the people, still more than it does
that of the proprietors of land. The rent of land, that portion of the produce which
belongs to the proprietors, is scarce anywhere in Great Britain supposed to be more
than a third part of the whole produce. If the land which, in one state of cultivation,
affords a revenue of ten millions sterling a-year, would in another afford a rent of
twenty millions; the rent being, in both cases, supposed a third part of the produce, the
revenue of the proprietors would be less than it otherwise might be, by ten millions
a-year only; but the revenue of the great hotly of the people would be less than it
otherwise might be, by thirty millions a-year, deducting only what would be necessary
for seed. The population of the country would be less by the number of people which
thirty millions a-year, deducting always the seed, could maintain, according to the

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particular mode of living, and expense which might take place in the different ranks of
men, among whom the remainder was distributed.

Though there is not at present in Europe, any civilized state of any kind which
derives the greater part of its public revenue from the rent of lands which are the
property of the state; yet, in all the great monarchies of Europe, there are still many
large tracts of land which belong to the crown. They are generally forest, and sometimes
forests where, after travelling several miles, you will scarce find a single tree; a mere
waste and loss of country, in respect both of produce and population. In every great
monarchy of Europe, the sale of the crown lands would produce a very large sum
of money, which, if applied to the payment of the public debts, would deliver from
mortgage a much greater revenue than any which those lands have even afforded to
the crown. In countries where lands, improved and cultivated very highly, and yielding,
at the time of sale, as great a rent as can easily be got from them, commonly sell
at thirty years purchase; the unimproved, uncultivated, and low-rented crown lands,
might well be expected to sell at forty, fifty, or sixty years purchase. The crown might
immediately enjoy the revenue which this great price would redeem from mortgage. In
the course of a few years, it would probably enjoy another revenue. When the crown
lands had become private property, they would, in the course of a few years, become
well improved and well cultivated. The increase of their produce would increase the
population of the country, by augmenting the revenue and consumption of the people.
But the revenue which the crown derives from the duties or custom and excise, would
necessarily increase with the revenue and consumption of the people.

The revenue which, in any civilized monarchy, the crown derives from the crown
lands, though it appears to cost nothing to individuals, in reality costs more to the
society than perhaps any other equal revenue which the crown enjoys. It would, in all
cases, be for the interest of the society, to replace this revenue to the crown by some
other equal revenue, and to divide the lands among the people, which could not well be
done better, perhaps, than by exposing them to public sale.

Lands, for the purposes of pleasure and magnificence, parks, gardens, public walks,
etc. possessions which are everywhere considered as causes of expense, not as sources
of revenue, seem to be the only lands which, in a great and civilized monarchy, ought
to belong to the crown.

Public stock and public lands, therefore, the two sources of revenue which may
peculiarly belong to the sovereign or commonwealth, being both improper and
insufficient funds for defraying the necessary expense of any great and civilized state;
it remains that this expense must, the greater part of it, be defrayed by taxes of one
kind or another; the people contributing a part of their own private revenue, in order
to make up a public revenue to the sovereign or commonwealth.

BoD

THE WEALTH OF NATIONS

PART II.
Of Taxes.

The private revenue of individuals, it has been shown in the first book of this
Inquiry, arises, ultimately from three different sources; rent, profit, and wages. Every
tax must finally be paid from some one or other of those three different sources of
revenue, ot from all of them indifferently. I shall endeavour to give the best account I
can, first, of those taxes which, it is intended should fall upon rent; secondly, of those
which, it is intended should fall upon profit; thirdly, of those which, it is intended should
fall upon wages; and fourthly, of those which, it is intended should fall indifferently
upon all those three different sources of private revenue. The particular consideration
of each of these four different sorts of taxes will divide the second part of the present
chapter into four articles, three of which will require several other subdivisions. Many
of these taxes, it will appear from the following review, are not finally paid from the
fund, or source of revenue, upon which it is intended they should fall.

Before I enter upon the examination of particular taxes, it is necessary to premise
the four following maximis with regard to taxes in general.

1. The subjects of every state ought to contribute towards the support of the
government, as nearly as possible, in proportion to their respective abilities; that is,
in proportion to the revenue which they respectively enjoy under the protection of
the state. The expense of government to the individuals of a great nation, is like the
expense of management to the joint tenants of a great estate, who are all obliged to
contribute in proportion to their respective interests in the estate. In the observation
or neglect of this maxim, consists what is called the equality or inequality of taxation.
Every tax, it must be observed once for all, which falls finally upon one only of the
three sorts of revenue above mentioned, is necessarily unequal, in so far as it does not
affect the other two. In the following examination of different taxes, I shall seldom
take much farther notice of this sort of inequality; but shall, in most cases, confine my
observations to that inequality which is occasioned by a particular tax falling unequally
upon that particular sort of private revenue which is affected by it.

2. The tax which each individual is bound to pay, ought to be certain and not
arbitrary. The time of payment, the manner of payment, the quantity to be paid, ought
all to be clear and plain to the contributor, and to every other person. Where it is
otherwise, every person subject to the tax is put more or less in the power of the
tax-gatherer, who can either aggravate the tax upon any obnoxious contributor, or
extort, by the terror of such aggravation, some present or perquisite to himself. The
uncertainty of taxation encourages the insolence, and favours the corruption, of an
order of men who are naturally unpopular, even where they are neither insolent nor

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corrupt. The certainty of what each individual ought to pay is, in taxation, a matter of
so great importance, that a very considerable degree of inequality, it appears, I believe,
from the experience of all nations, is not near so great an evil as a very small degree of
uncertainty.

3. Every tax ought to be levied at the time, or in the manner, in which it is most
likely to be convenient for the contributor to pay it. A tax upon the rent of land or
of houses, payable at the same term at which such rents are usually paid, is levied at
the time when it is most likely to be convenient for the contributor to pay; or when he
is most likely to have wherewithall to pay. Taxes upon such consumable goods as are
articles of luxury, are all finally paid by the consumer, and generally in a manner that is
very convenient for him. He pays them by little and little, as he has occasion to buy the
goods. As he is at liberty too, either to buy or not to buy, as he pleases, it must be his
own fault if he ever suffers any considerable inconveniency ftom such taxes.

4. Every tax ought to be so contrived, as both to take out and to keep out of the
pockets of the people as little as possible, over and above what it brings into the public
treasury of the state. A tax may either take out or keep out of the pockets of the
people a great deal more than it brings into the public treasury, in the four following
ways. First, the levying of it may require a great number of officers, whose salaries
may eat up the greater part of the produce of the tax, and whose perquisites may
impose another additional tax upon the people. Secondly, it may obstruct the industry
of the people, and discourage them from applying to certain branches of business
which might give maintenance and employment to great multitudes. While it obliges
the people to pay, it may thus diminish, or perhaps destroy, some of the funds which
might enable them more easily to do so. Thirdly, by the forfeitures and other penalties
which those unfortunate individuals incur, who attempt unsuccessfully to evade the
tax, it may frequently ruin them, and thereby put an end to the benefit which the
community might have received from the employment of their capitals. An injudicious
tax offers a great temptation to smuggling. But the penalties of smuggling must arise
in proportion to the temptation. The law, contrary to all the ordinary principles of
justice, first creates the temptation, and then punishes those who yield to it; and it
commonly enhances the punishment, too, in proportion to the very circumstance
which ought certainly to alleviate it, the temptation to commit the crime. {See Sketches
of the History of Man page 474, and Seq.} Fourthly, by subjecting the people to the
frequent visits and the odious examination of the tax-gatherers, it may expose them
to much unnecessary trouble, vexation, and oppression; and though vexation is not,
strictly speaking, expense, it is certainly equivalent to the expense at which every man
would be willing to redeem himself from it. It is in some one or other of these four
different ways, that taxes are frequently so much more burdensome to the people than
they are beneficial to the sovereign.

The evident justice and utility of the foregoing maxims have recommended them,
mote ot less, to the attention of all nations. All nations have endeavoured, to the best
of their judgment, to render their taxes as equal as they could contrive; as certain,

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as convenient to the contributor, both the time and the mode of payment, and in
proportion to the revenue which they brought to the prince, as little burdensome to the
people. The following short review of some of the principal taxes which have taken
place in different ages and countries, will show, that the endeavours of all nations have
not in this respect been equally successful.

ARTICLE I.—Taxes upon Rent—Taxes upon the Rent of Land.

A tax upon the rent of land may either be imposed according to a certain canon,
every district being valued at a curtain rent, which valuation is not afterwards to be
altered; or it may be imposed in such a manner, as to vary with every variation in the
real rent of the land, and to rise or fall with the improvement or declension of its
cultivation.

A land tax which, like that of Great Britain, is assessed upon each district
according to a certain invariable canon, though it should be equal at the time of its
first establishment, necessarily becomes unequal in process of time, according to the
unequal degrees of improvement or neglect in the cultivation of the different parts
of the country. In England, the valuation, according to which the different counties
and parishes were assessed to the land tax by the 4th of William and Mary, was very
unequal even at its first establishment. This tax, therefore, so far offends against the
first of the four maxims above mentioned. It is perfectly agreeable to the other three.
It is perfectly certain. The time of payment for the tax, being the same as that for the
rent, is as convenient as it can be to the contributor. Though the landlord is, in all
cases, the real contributor, the tax is commonly advanced by the tenant, to whom the
landlord is obliged to allow it in the payment of the rent. This tax is levied by a much
smaller number of officers than any other which affords nearly the same revenue. As
the tax upon each district does not rise with the rise of the rent, the sovereign does not
share in the profits of the landlord’s improvements. Those improvements sometimes
contribute, indeed, to the discharge of the other landlords of the district. But the
ageravation of the tax, which this may sometimes occasion upon a particular estate, is
always so very small, that it never can discourage those improvements, nor keep down
the produce of the land below what it would otherwise rise to. As it has no tendency
to diminish the quantity, it can have none to raise the price of that produce. It does not
obstruct the industry of the people; it subjects the landlord to no other inconveniency
besides the unavoidable one of paying the tax. The advantage, however, which the
land-lord has derived from the invariable constancy of the valuation, by which all the
lands of Great Britain are rated to the land-tax, has been principally owing to some
circumstances altogether extraneous to the nature of the tax.

It has been owing in part, to the great prosperity of almost every part of the
country, the rents of almost all the estates of Great Britain having, since the time when
this valuation was first established, been continually rising, and scarce any of them
having fallen. The landlords, therefore, have almost all gained the difference between
the tax which they would have paid, according to the present rent of their estates,
and that which they actually pay according to the ancient valuation. Had the state of

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the country been different, had rents been gradually falling in consequence of the
declension of cultivation, the landlords would almost all have lost this difference. In the
state of things which has happened to take place since the revolution, the constancy of
the valuation has been advantageous to the landlord and hurtful to the sovereign. In a
different state of things it might have been advantageous to the sovereign and hurtful
to the landlord.

As the tax is made payable in money, so the valuation of the land is expressed in
money. Since the establishment of this valuation, the value of silver has been pretty
uniform, and there has been no alteration in the standard of the coin, either as to
weight or fineness. Had silver risen considerably in its value, as it seems to have done in
the course of the two centuries which preceded the discovery of the mines of America,
the constancy of the valuation might have proved very oppressive to the landlord.
Had silver fallen considerably in its value, as it certainly did for about a century at
least after the discovery of those mines, the same constancy of valuation would have
reduced very much this branch of the revenue of the sovereign. Had any considerable
alteration been made in the standard of the money, either by sinking the same quantity
of silver to a lower denomination, or by raising it to a higher; had an ounce of silver,
for example, instead of being coined into five shillings and two pence, been coined
either into pieces which bore so low a denomination as two shillings and seven pence,
or into pieces which bore so high a one as ten shillings and four pence, it would, in the
one case, have hurt the revenue of the proprietor, in the other that of the sovereign.

In circumstances, therefore, somewhat different from those which have actually
taken place, this constancy of valuation might have been a very great inconveniency,
either to the contributors or to the commonwealth. In the course of ages, such
circumstances, however, must at some time or other happen. But though empires, like
all the other works of men, have all hitherto proved mortal, yet every empire aims at
immortality. Every constitution, therefore, which it is meant should be as permanent as
the empire itself, ought to be convenient, not in certain circumstances only, but in all
circumstances; or ought to be suited, not to those circumstances which are transitory,
occasional, or accidental, but to those which are necessary, and therefore always the
same.

A tax upon the rent of land, which varies with every variation of the rent, or which
rises and falls according to the improvement or neglect of cultivation, is recommended
by that sect of men of letters in France, who call themselves the economists, as the
most equitable of all taxes. All taxes, they pretend, fall ultimately upon the rent of
land, and ought, therefore, to be imposed equally upon the fund which must finally
pay them. That all taxes ought to fall as equally as possible upon the fund which must
finally pay them, is certainly true. But without entering into the disagreeable discussion
of the metaphysical arguments by which they support their very ingenious theory, it
will sufficiently appear, from the following review, what are the taxes which fall finally
upon the rent of the land, and what are those which fall finally upon some other fund.

In the Venetian territory, all the arable lands which are given in lease to farmers

DvD)

THE WEALTH OF NATIONS ~

are taxed at a tenth of the rent. {Memoires concernant les Droits, p. 240, 241.} The
leases are recorded in a public register, which is kept by the officers of revenue in
each province or district. When the proprietor cultivates his own lands, they are valued
according to an equitable estimation, and he is allowed a deduction of one-fifth of the
tax; so that for such land he pays only eight instead of ten per cent. of the supposed
rena

A land-tax of this kind is certainly more equal than the land-tax of England. It
might not, perhaps, be altogether so certain, and the assessment of the tax might
frequently occasion a good deal more trouble to the landlord. It might, too, be a good
deal more expensive in the levying.

Such a system of administration, however, might, perhaps, be contrived, as would
in a great measure both prevent this uncertainty, and moderate this expense.

The landlord and tenant, for example, might jointly be obliged to record their
lease in a public register. Proper penalties might be enacted against concealing or
misrepresenting any of the conditions; and if part of those penalties were to be paid
to either of the two parties who informed against and convicted the other of such
concealment or misrepresentation, it would effectually deter them from combining
together in order to defraud the public revenue. All the conditions of the lease might
be sufficiently known from such a record.

Some landlords, instead of raising the rent, take a fine for the renewal of the
lease. This practice is, in most cases, the expedient of a spendthrift, who, for a sum
of ready money sells a future revenue of much greater value. It is, in most cases,
therefore, hurtful to the landlord; it is frequently hurtful to the tenant; and it is always
hurtful to the community. It frequently takes from the tenant so great a part of his
capital, and thereby diminishes so much his ability to cultivate the land, that he finds
it more difficult to pay a small rent than it would otherwise have been to pay a great
one. Whatever diminishes his ability to cultivate, necessarily keeps down, below what it
would otherwise have been, the most important part of the revenue of the community.
By rendering the tax upon such fines a good deal heavier than upon the ordinary rent,
this hurtful practice might be discouraged, to the no small advantage of all the different
parties concerned, of the landlord, of the tenant, of the sovereign, and of the whole
community.

Some leases prescribe to the tenant a certain mode of cultivation, and a certain
succession of crops, during the whole continuance of the lease. This condition, which
is generally the effect of the landlord’s conceit of his own superior knowledge (a
conceit in most cases very ill-founded), ought always to be considered as an additional
rent, as a rent in service, instead of a rent in money. In order to discourage the practice,
which is generally a foolish one, this species of rent might be valued rather high, and
consequently taxed somewhat higher than common money-tents.

Some landlords, instead of a rent in money, require a rent in kind, in corn, cattle,
poultry, wine, oil, etc.; others, again, require a rent in service. Such rents are always
more hurtful to the tenant than beneficial to the landlord. They either take more, or

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keep more out of the pocket of the former, than they put into that of the latter. In
every country where they take place, the tenants are poor and beggarly, pretty much
according to the degree in which they take place. By valuing, in the same manner,
such rents rather high, and consequently taxing them somewhat higher than common
money-tents, a practice which is hurtful to the whole community, might, perhaps, be
sufficiently discouraged.

When the landlord chose to occupy himself a part of his own lands, the rent
might be valued according to an equitable arbitration of the farmers and landlords in
the neighbourhood, and a moderate abatement of the tax might be granted to him, in
the same mannet as in the Venetian territory, provided the rent of the lands which he
occupied did not exceed a certain sum. It is of importance that the landlord should
be encouraged to cultivate a part of his own land. His capital is generally greater
than that of the tenant, and, with less skill, he can frequently raise a greater produce.
The landlord can afford to try experiments, and is generally disposed to do so. His
unsuccessful experiments occasion only a moderate loss to himself. His successful
ones contribute to the improvement and better cultivation of the whole country. It
might be of importance, however, that the abatement of the tax should encourage
him to cultivate to a certain extent only. If the landlords should, the greater part of
them, be tempted to farm the whole of their own lands, the country (instead of sober
and industrious tenants, who are bound by their own interest to cultivate as well as
their capital and skill will allow them) would be filled with idle and profligate bailiffs,
whose abusive management would soon degrade the cultivation, and reduce the annual
produce of the land, to the diminution, not only of the revenue of their masters, but
of the most important part of that of the whole society.

Such a system of administration might, perhaps, free a tax of this kind from any
degree of uncertainty, which could occasion either oppression or inconveniency to
the contributor; and might, at the same time, serve to introduce into the common
management of land such a plan of policy as might contribute a good deal to the
general improvement and good cultivation of the country.

The expense of levying a land-tax, which varied with every variation of the rent,
would, no doubt, be somewhat greater than that of levying one which was always
rated according to a fixed valuation. Some additional expense would necessarily be
incurred, both by the different register-offices which it would be proper to establish
in the different districts of the country, and by the different valuations which might
occasionally be made of the lands which the proprietor chose to occupy himself. The
expense of all this, however, might be very moderate, and much below what is incurred
in the levying of many other taxes, which afford a very inconsiderable revenue in
comparison of what might easily be drawn from a tax of this kind.

The discouragement which a variable land-tax of this kind might give to the
improvement of land, seems to be the most important objection which can be made to
it. The landlord would certainly be less disposed to improve, when the sovereign, who
contributed nothing to the expense, was to share in the profit of the improvement.

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Even this objection might, perhaps, be obviated, by allowing the landlord, before he
began his improvement, to ascertain, in conjunction with the officers of revenue, the
actual value of his lands, according to the equitable arbitration of a certain number of
landlords and farmers in the neighbourhood, equally chosen by both parties: and by
rating him, according to this valuation, for such a number of years as might be fully
sufficient for his complete indemnification. To draw the attention of the sovereign
towards the improvement of the land, from a regard to the increase of his own revenue,
is one or the principal advantages proposed by this species of land-tax. The term,
therefore, allowed, for the indemnification of the landlord, ought not to be a great deal
longer than what was necessary for that purpose, lest the remoteness of the interest
should discourage too much this attention. It had better, however, be somewhat too
long, than in any respect too short. No incitement to the attention of the sovereign can
ever counterbalance the smallest discouragement to that of the landlord. The attention
of the sovereign can be, at best, but a very general and vague consideration of what is
likely to contribute to the better cultivation of the greater part of his dominions. The
attention of the landlord is a particular and minute consideration of what is likely to
be the most advantageous application of every inch of ground upon his estate. The
principal attention of the sovereign ought to be, to encourage, by every means in his
power, the attention both of the landlord and of the farmer, by allowing both to pursue
their own interest in their own way, and according to their own judgment; by giving to
both the most perfect security that they shall enjoy the full recompence of their own
industry; and by procuring to both the most extensive market for every part of their
produce, in consequence of establishing the easiest and safest communications, both
by land and by water, through every part of his own dominions, as well as the most
unbounded freedom of exportation to the dominions of all other princes.

If, by such a system of administration, a tax of this kind could be so managed as
to give, not only no discouragement, but, on the contrary, some encouragement to the
improvement or land, it does not appear likely to occasion any other inconveniency to
the landlord, except always the unavoidable one of being obliged to pay the tax. In all
the variations of the state of the society, in the improvement and in the declension of
agriculture; in all the variations in the value of silver, and in all those in the standard
of the coin, a tax of this kind would, of its own accord, and without any attention of
government, readily suit itself to the actual situation of things, and would be equally
just and equitable in all those different changes. It would, therefore, be much more
proper to be established as a perpetual and unalterable regulation, or as what is called
a fundamental law of the commonwealth, than any tax which was always to be levied
according to a certain valuation.

Some states, instead of the simple and obvious expedient of a register of leases,
have had recourse to the laborious and expensive one of an actual survey and valuation
of all the lands in the country. They have suspected, probably, that the lessor and lessee,
in order to defraud the public revenue, might combine to conceal the real terms of the
lease. Doomsday-book seems to have been the result of a very accurate survey of this

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ADAM SMITH

kind.

In the ancient dominions of the king of Prussia, the land-tax is assessed according
to an actual survey and valuation, which is reviewed and altered from time to time.
{Memoires concurent les Droits, etc. tom, 1. p. 114, 115, 116, etc.} According to that
valuation, the lay proprietors pay from twenty to twenty-five per cent. of their revenue;
ecclesiastics from forty to forty-five per cent. The survey and valuation of Silesia was
made by order of the present king, it is said, with great accuracy. According to that
valuation, the lands belonging to the bishop of Breslaw are taxed at twenty-five per
cent. of their rent. The other revenues of the ecclesiastics of both religions at fifty per
cent. The commanderies of the Teutonic order, and of that of Malta, at forty per cent.
Lands held by a noble tenure, at thirty-eight and one-third per cent. Lands held by a
base tenure, at thirty-five and one-third per cent.

The survey and valuation of Bohemia is said to have been the work of more than
a hundred years. It was not perfected till after the peace of 1748, by the orders of the
present empress queen. {Id. tom 1. p.85, 84.} The survey of the duchy of Milan, which
was begun in the time of Charles VL, was not perfected till after 1760 It is esteemed
one of the most accurate that has ever been made. The survey of Savoy and Piedmont
was executed under the orders of the late king of Sardinia. {Id. p. 280, etc.; also p, 287.
etc. to 316.}

In the dominions of the king of Prussia, the revenue of the church is taxed much
higher than that of lay proprietors. The revenue of the church is, the greater part of
it, a burden upon the rent of land. It seldom happens that any part of it is applied
towards the improvement of land; or is so employed as to contribute, in any respect,
towards increasing the revenue of the great body of the people. His Prussian majesty
had probably, upon that account, thought it reasonable that it should contribute a good
deal more towards relieving the exigencies of the state. In some countries, the lands
of the church are exempted from all taxes. In others, they are taxed more lightly than
other lands. In the duchy of Milan, the lands which the church possessed before 1575,
are rated to the tax at a third only or their value.

In Silesia, lands held by a noble tenure are taxed three per cent. higher than those
held by a base tenure. The honours and privileges of different kinds annexed to the
former, his Prussian majesty had probably imagined, would sufficiently compensate to
the proprietor a small aggravation of the tax; while, at the same time, the humiliating
inferiority of the latter would be in some measure alleviated, by being taxed somewhat
mote lightly. In other countries, the system of taxation, instead of alleviating, aggravates
this inequality. In the dominions of the king of Sardinia, and in those provinces of
France which are subject to what is called the real or predial taille, the tax falls altogether
upon the lands held by a base tenure. Those held by a noble one are exempted.

A land tax assessed according to a general survey and valuation, how equal soever
it may be at first, must, in the course of a very moderate period of time, become
unequal. To prevent its becoming so would require the continual and painful attention
of government to all the variations in the state and produce of every different farm in

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the country. The governments of Prussia, of Bohemia, of Sardinia, and of the duchy
of Milan, actually exert an attention of this kind; an attention so unsuitable to the
nature of government, that it is not likely to be of long continuance, and which, if it
is continued, will probably, in the long-run, occasion much more trouble and vexation
than it can possibly bring relief to the contributors.

In 1666, the generality of Montauban was assessed to the real or predial taille,
according, it is said, to a very exact survey and valuation. {Memoires concernant les
Droits, etc. tom. ii p. 139, etc.} By 1727, this assessment had become altogether unequal.
In order to remedy this inconveniency, government has found no better expedient,
than to impose upon the whole generality an additional tax of a hundred and twenty
thousand livres. This additional tax is rated upon all the different districts subject to
the taille according to the old assessment. But it is levied only upon those which, in the
actual state of things, are by that assessment under-taxed; and it is applied to the relief
of those which, by the same assessment, are over-taxed. Two districts, for example,
one of which ought, in the actual state of things, to be taxed at nine hundred, the
other at eleven hundred livres, are, by the old assessment, both taxed at a thousand
livres. Both these districts are, by the additional tax, rated at eleven hundred livres
each. But this additional tax is levied only upon the district under-charged, and it is
applied altogether to the relief of that overcharged, which consequently pays only nine
hundred livres. The government neither gains nor loses by the additional tax, which
is applied altogether to remedy the inequalities arising from the old assessment. The
application is pretty much regulated according to the discretion of the intendant of the
generality, and must, therefore, be in a great measure arbitrary.

Taxes which are proportioned, not in the Rent, but to the Produce of Land.

Taxes upon the produce of land are, In reality, taxes upon the rent; and though
they may be originally advanced by the farmer, are finally paid by the landlord. When
a certain portion of the produce is to be paid away for a tax, the farmer computes as
well as he can, what the value of this portion is, one year with another, likely to amount
to, and he makes a proportionable abatement in the rent which he agrees to pay to the
landlord. There is no farmer who does not compute beforehand what the church tythe,
which is a land tax of this kind, is, one year with another, likely to amount to.

The tythe, and every other land tax of this kind, under the appearance of perfect
equality, are very unequal taxes; a certain portion of the produce being in differrent
situations, equivalent to a very different portion of the rent. In some very rich lands,
the produce is so great, that the one half of it is fully sufficient to replace to the farmer
his capital employed in cultivation, together with the ordinary profits of farming stock
in the neighbourhood. The other half, or, what comes to the same thing, the value of
the other half, he could afford to pay as rent to the landlord, if there was no tythe.
But if a tenth of the produce is taken from him in the way of tythe, he must require
an abatement of the fifth part of his rent, otherwise he cannot get back his capital
with the ordinary profit. In this case, the rent of the landlord, instead of amounting
to a half, or five-tenths of the whole produce, will amount only to four-tenths of it.

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In poorer lands, on the contrary, the produce is sometimes so small, and the expense
of cultivation so great, that it requires four-fifths of the whole produce, to replace to
the farmer his capital with the ordinary profit. In this case, though there was no tythe,
the rent of the landlord could amount to no more than one-fifth or two-tenths of the
whole produce. But if the farmer pays one-tenth of the produce in the way of tythe,
he must require an equal abatement of the rent of the landlord, which will thus be
reduced to one-tenth only of the whole produce. Upon the rent of rich lands the tythe
may sometimes be a tax of no more than one-fifth part, or four shillings in the pound;
whereas upon that of poorer lands, it may sometimes be a tax of one half, or of ten
shillings in the pound.

The tythe, as it is frequently a very unequal tax upon the rent, so it is always a great
discouragement, both to the improvements of the landlord, and to the cultivation of
the farmer. The one cannot venture to make the most important, which are generally
the most expensive improvements; nor the other to raise the most valuable, which are
generally, too, the most expensive crops; when the church, which lays out no part of
the expense, is to share so very largely in the profit. The cultivation of madder was, for
a long time, confined by the tythe to the United Provinces, which, being presbyterian
countries, and upon that account exempted from this destructive tax, enjoyed a sort of
monopoly of that useful dyeing drug against the rest of Europe. The late attempts to
introduce the culture of this plant into England, have been made only in consequence
of the statute, which enacted that five shillings an acre should be received in lieu of all
manner of tythe upon madder.

As through the greater part of Europe, the church, so in many different countries
of Asia, the state, is principally supported by a land tax, proportioned not to the rent,
but to the produce of the land. In China, the principal revenue of the sovereign consists
in a tenth part of the produce of all the lands of the empire. This tenth part, however,
is estimated so very moderately, that, in many provinces, it is said not to exceed a
thirtieth part of the ordinary produce. The land tax or land rent which used to be paid
to the Mahometan government of Bengal, before that country fell into the hands of
the English East India company, is said to have amounted to about a fifth part of the
produce. The land tax of ancient Egypt is said likewise to have amounted to a fifth part.

In Asia, this sort of land tax is said to interest the sovereign in the improvement
and cultivation of land. The sovereigns of China, those of Bengal while under the
Mahometan govermnent, and those of ancient Egypt, are said, accordingly, to have
been extremely attentive to the making and maintaining of good roads and navigable
canals, in order to increase, as much as possible, both the quantity and value of every
part of the produce of the land, by procuring to every part of it the most extensive
market which their own dominions could afford. The tythe of the church is divided
into such small portions that no one of its proprietors can have any interest of this
kind. The parson of a parish could never find his account, in making a road or canal
to a distant part of the country, in order to extend the market for the produce of his
own particular parish. Such taxes, when destined for the maintenance of the state, have

605

some advantages, which may serve in some measure to balance their inconveniency.
When destined for the maintenance of the church, they are attended with nothing but
inconveniency.

Taxes upon the produce of land may be levied, either in kind, or, according to a
certain valuation in money.

The parson of a parish, or a gentleman of small fortune who lives upon his estate,
may sometimes, perhaps find some advantage in receiving, the one his tythe, and the
other his rent, in kind. The quantity to be collected, and the district within which it is to
be collected, ate so small, that they both can oversee, with their own eyes, the collection
and disposal of every part of what is due to them. A gentleman of great fortune, who
lived in the capital, would be in danger of suffering much by the neglect, and more
by the fraud, of his factors and agents, if the rents of an estate in a distant province
were to be paid to him in this manner. The loss of the sovereign, from the abuse and
depredation of his tax-gatherers, would necessarily be much greater. The servants of
the most careless private person are, perhaps, more under the eye of their master than
those of the most careful prince; and a public revenue, which was paid in kind, would
suffer so much from the mismanagement of the collectors, that a very small part of
what was levied upon the people would ever arrive at the treasury of the prince. Some
part of the public revenue of China, however, is said to be paid in this manner. The
mandarins and other tax-gatherers will, no doubt, find their advantage in continuing
the practice of a payment, which is so much mote liable to abuse than any payment in
money.

A tax upon the produce of land, which is levied in money, may be levied, either
according to a valuation, which varies with all the variations of the market price; or
according to a fixed valuation, a bushel of wheat, for example, being always valued at
one and the same money price, whatever may be the state of the market. The produce
of a tax levied in the former way will vary only according to the variations in the real
produce of the land, according to the improvement or neglect of cultivation. The
produce of a tax levied in the latter way will vary, not only according to the variations
in the produce of the land, but according both to those in the value of the precious
metals, and those in the quantity of those metals which is at different times contained
in coin of the same denomination. The produce of the former will always bear the
same proportion to the value of the real produce of the land. The produce of the latter
may, at different times, bear very different proportions to that value.

When, instead either of a certain portion of the produce of land, or of the price
of a certain portion, a certain sum of money is to be paid in full compensation for all
tax or tythe; the tax becomes, in this case, exactly of the same nature with the land tax
of England. It neither rises nor falls with the rent of the land. It neither encourages
nor discourages improvement. The tythe in the greater part of those parishes which
pay what is called a modus, in lieu of all other tythe is a tax of this kind. During the
Mahometan government of Bengal, instead of the payment in kind of the fifth part
of the produce, a modus, and, it is said, a very moderate one, was established in the

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greater part of the districts or zemindaries of the country. Some of the servants of
the East India company, under pretence of restoring the public revenue to its proper
value, have, in some provinces, exchanged this modus for a payment in kind. Under
their management, this change is likely both to discourage cultivation, and to give new
Opportunities for abuse in the collection of the public revenue, which has fallen very
much below what it was said to have been when it first fell under the management of
the company. The servants of the company may, perhaps, have profited by the change,
but at the expense, it is probable, both of their masters and of the country.

Taxes upon the Rent of Houses.

The rent of a house may be distinguished into two parts, of which the one may
very propertly be called the building-rent; the other is commonly called the ground-rent.

The building-rent is the interest or profit of the capital expended in building
the house. In order to put the trade of a builder upon a level with other trades, it is
necessary that this rent should be sufficient, first, to pay him the same interest which
he would have got for his capital, if he had lent it upon good security; and, secondly,
to keep the house in constant repair, or, what comes to the same thing, to replace,
within a certain term of years, the capital which had been employed in building it. The
building-rent, or the ordinary profit of building, is, therefore, everywhere regulated by
the ordinary interest of money. Where the market rate of interest is four per cent. the
rent of a house, which, over and above paying the ground-rent, affords six or six and
a-half per cent. upon the whole expense of building, may, perhaps, afford a sufficient
profit to the builder. Where the market rate of interest is five per cent. it may perhaps
require seven or seven and a half per cent. If, in proportion to the interest of money,
the trade of the builders affords at any time much greater profit than this, it will soon
draw so much capital from other trades as will reduce the profit to its proper level. If
it affords at any time much less than this, other trades will soon draw so much capital
from it as will again raise that profit.

Whatever part of the whole rent of a house is over and above what is sufficient
for affording this reasonable profit, naturally goes to the eround-rent; and, where the
owner of the ground and the owner of the building are two different persons, is, in
most cases, completely paid to the former. This surplus rent is the price which the
inhabitant of the house pays for some real or supposed advantage of the situation.
In country houses, at a distance from any great town, where there is plenty of ground
to chuse upon, the ground-rent is scarce anything, or no more than what the ground
which the house stands upon would pay, if employed in agriculture. In country villas,
in the neighbourhood of some great town, it is sometimes a good deal higher; and
the peculiar conveniency or beauty of situation is there frequently very well paid for.
Ground-rents ate generally highest in the capital, and in those particular parts of it
where there happens to be the greatest demand for houses, whatever be the reason
of that demand, whether for trade and business, for pleasure and society, or for mere
vanity and fashion.

A tax upon house-rent, payable by the tenant, and proportioned to the whole rent

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of each house, could not, for any considerable time at least, affect the building-rent.
If the builder did not get his reasonable profit, he would be obliged to quit the trade;
which, by raising the demand for building, would, in a short time, bring back his profit
to its proper level with that of other trades. Neither would such a tax fall altogether
upon the ground-rent; but it would divide itself in such a manner, as to fall partly upon
the inhabitant of the house, and partly upon the owner of the ground.

Let us suppose, for example, that a particular person judges that he can afford for
house-rent all expense of sixty pounds a-year; and let us suppose, too, that a tax of four
shillings in the pound, or of one-fifth, payable by the inhabitant, is laid upon house-rent.
A house of sixty pounds rent will, in that case, cost him seventy-two pounds a-year,
which is twelve pounds more than he thinks he can afford. He will, therefore, content
himself with a worse house, or a house of fifty pounds rent, which, with the additional
ten pounds that he must pay for the tax, will make up the sum of sixty pounds a-year,
the expense which he judges he can afford, and, in order to pay the tax, he will give
up a part of the additional conveniency which he might have had from a house of ten
pounds a-year more rent. He will give up, I say, a part of this additional conveniency;
for he will seldom be obliged to give up the whole, but will, in consequence of the tax,
get a better house for fifty pounds a-year, than he could have got if there had been no
tax for as a tax of this kind, by taking away this particular competitor, must diminish the
competition for houses of sixty pounds rent, so it must likewise diminish it for those of
fifty pounds rent, and in the same manner for those of all other rents, except the lowest
rent, for which it would for some time increase the competition. But the rents of every
class of houses for which the competition was diminished, would necessarily be more
ot less reduced. As no part of this reduction, however, could for any considerable time
at least, affect the building-rent, the whole of it must, in the long-run, necessarily fall
upon the ground-rent. The final payment of this tax, therefore, would fall partly upon
the inhabitant of the house, who, in order to pay his share, would be obliged to give up
a part of his conveniency; and partly upon the owner of the ground, who, in order to
pay his share, would be obliged to give up a part of his revenue. In what proportion this
final payment would be divided between them, it is not, perhaps, very easy to ascertain.
The division would probably be very different in different circumstances, and a tax of
this kind might, according to those different circumstances, affect very unequally, both
the inhabitant of the house and the owner of the ground.

The inequality with which a tax of this kind might fall upon the owners of different
ground-rents, would arise altogether from the accidental inequality of this division.
But the inequality with which it might fall upon the inhabitants of different houses,
would arise, not only from this, but from another cause. The proportion of the expense
of house-rent to the whole expense of living, is different in the different degrees of
fortune. It is, perhaps, highest in the highest degree, and it diminishes gradually through
the inferior degrees, so as in general to be lowest in the lowest degree. The necessaries
of life occasion the great expense of the poor. They find it difficult to get food, and
the greater part of their little revenue is spent in getting it. The luxuries and vanities

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of life occasion the principal expense of the rich; and a magnificent house embellishes
and sets off to the best advantage all the other luxuries and vanities which they possess.
A tax upon house-rents, therefore, would in general fall heaviest upon the rich; and in
this sort of inequality there would not, perhaps, be any thing very unreasonable. It is
not very unreasonable that the rich should contribute to the public expense, not only in
proportion to their revenue, but something more than in that proportion.

The rent of houses, though it in some respects resembles the rent of land, is in one
respect essentially different from it. The rent of land is paid for the use of a productive
subject. The land which pays it produces it. The rent of houses is paid for the use of an
unproductive subject. Neither the house, nor the ground which it stands upon, produce
anything. The person who pays the rent, therefore, must draw it from some other
source of revenue, distinct from and independent of this subject. A tax upon the rent
of houses, so far as it falls upon the inhabitants, must be drawn from the same source
as the rent itself, and must be paid from their revenue, whether derived from the wages
of labour, the profits of stock, or the rent of land. So far as it falls upon the inhabitants,
it is one of those taxes which fall, not upon one only, but indifferently upon all the
three different sources of revenue; and is, in every respect, of the same nature as a
tax upon any other sort of consumable commodities. In general, there is not perhaps,
any one article of expense or consumption by which the liberality or narrowness of a
man’s whole expense can be better judged of than by his house-rent. A proportional
tax upon this particular article of expense might, perhaps, produce a more considerable
revenue than any which has hitherto been drawn from it in any part of Europe. If the
tax, indeed, was very high, the greater part of people would endeavour to evade it as
much as they could, by contenting themselves with smaller houses, and by turning the
greater part of their expense into some other channel.

The rent of houses might easily be ascertained with sufficient accuracy, by a policy
of the same kind with that which would be necessary for ascertaining the ordinary
rent of land. Houses not inhabited ought to pay no tax. A tax upon them would fall
altogether upon the proprietor, who would thus be taxed for a subject which afforded
him neither conveniency nor revenue. Houses inhabited by the proprietor ought to
be rated, not according to the expense which they might have cost in building, but
according to the rent which an equitable arbitration might judge them likely to bring
if leased to a tenant. If rated according to the expense which they might have cost in
building, a tax of three or four shillings in the pound, joined with other taxes, would
ruin almost all the rich and great families of this, and, I believe, of every other civilized
country. Whoever will examine with attention the different town and country houses
of some of the richest and greatest families in this country, will find that, at the rate
of only six and a-half, or seven per cent. upon the original expense of building, their
house-rent is nearly equal to the whole neat rent of their estates. It is the accumulated
expense of several successive generations, laid out upon objects of great beauty and
magnificence, indeed, but, in proportion to what they cost, of very small exchangeable
value. {Since the first publication of this book, a tax nearly upon the above-mentioned

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principles has been imposed. }

Ground-rents are a still more proper subject of taxation than the rent of houses.
A tax upon ground-rents would not raise the rent of houses; it would fall altogether
upon the owner of the ground-rent, who acts always as a monopolist, and exacts the
greatest rent which can be got for the use of his ground. More or less can be got for it,
according as the competitors happen to be richer or poorer, or can afford to gratify their
fancy for a particular spot of ground at a greater or smaller expense. In every country,
the greatest number of rich competitors is in the capital, and it is there accordingly that
the highest ground-rents are always to be found. As the wealth of those competitors
would in no respect be increased by a tax upon ground-rents, they would not probably
be disposed to pay more for the use of the ground. Whether the tax was to be advanced
by the inhabitant or by the owner of the ground, would be of little importance. The
more the inhabitant was obliged to pay for the tax, the less he would incline to pay for
the ground; so that the final payment of the tax would fall altogether upon the owner
of the ground-rent. The ground-rents of uninhabited houses ought to pay no tax. Both
ground-rents, and the ordinary rent of land, are a species of revenue which the owner,
in many cases, enjoys without any care or attention of his own. Though a part of this
revenue should be taken from him in order to defray the expenses of the state, no
discouragement will thereby be given to any sort of industry. The annual produce of
the land and labour of the society, the real wealth and revenue of the great body of the
people, might be the same after such a tax as before. Ground-rents, and the ordinary
rent of land, are therefore, perhaps, the species of revenue which can best bear to have
a peculiar tax imposed upon them.

Ground-rents seem, in this respect, a more proper subject of peculiar taxation,
than even the ordinary rent of land. The ordinary rent of land is, in many cases, owing
partly, at least, to the attention and good management of the landlord. A very heavy tax
might discourage, too much, this attention and good management. Ground-rents, so far
as they exceed the ordinary rent of land, are altogether owing to the good government
of the sovereign, which, by protecting the industry either of the whole people or of
the inhabitants of some particular place, enables them to pay so much more than its
real value for the ground which they build their houses upon; or to make to its owner
so much more than compensation for the loss which he might sustain by this use of it.
Nothing can be more reasonable, than that a fund, which owes its existence to the good
government of the state, should be taxed peculiarly, or should contribute something
more than the greater part of other funds, towards the support of that government.

Though, in many different countries of Europe, taxes have been imposed upon
the rent of houses, I do not know of any in which ground-rents have been considered
as a separate subject of taxation. The contrivers of taxes have, probably, found some
difficulty in ascertaining what part of the rent ought to be considered as ground-rent,
and what part ought to be considered as building-rent. It should not, however, seem
very difficult to distinguish those two parts of the rent from one another.

In Great Britain the rent of houses is supposed to be taxed in the same proportion

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as the rent of land, by what is called the annual land tax. The valuation, according to
which each different parish and district is assessed to this tax, is always the same. It
was originally extremely unequal, and it still continues to be so. Through the greater
part of the kingdom this tax falls still more lightly upon the rent of houses than upon
that of land. In some few districts only, which were originally rated high, and in which
the rents of houses have fallen considerably, the land tax of three or four shillings
in the pound is said to amount to an equal proportion of the real rent of houses.
Untenanted houses, though by law subject to the tax, are, in most districts, exempted
from it by the favour of the assessors; and this exemption sometimes occasions some
little variation in the rate of particular houses, though that of the district is always the
same. Improvements of rent, by new buildings, repairs, etc. go to the discharge of the
district, which occasions still further variations in the rate of particular houses.

In the province of Holland, {Memoires concernant les Droits, etc. p. 223.} every
house is taxed at two and a-half per cent. of its value, without any regard, either to the
rent which it actually pays, or to the circumstance of its being tenanted or untenanted.
There seems to be a hardship in obliging the proprietor to pay a tax for an untenanted
house, from which he can derive no revenue, especially so very heavy a tax. In Holland,
where the market rate of interest does not exceed three per cent., two and a-half per
cent. upon the whole value of the house must, in most cases, amount to more than a
third of the building-rent, perhaps of the whole rent. The valuation, indeed, according
to which the houses are rated, though very unequal, is said to be always below the real
value. When a house is rebuilt, improved, or enlarged, there is a new valuation, and the
tax is rated accordingly.

The contrivers of the several taxes which in England have, at different times, been
imposed upon houses, seem to have imagined that there was some great difficulty in
ascertaining, with tolerable exactness, what was the real rent of every house. They have
regulated their taxes, therefore, according to some more obvious circumstance, such as
they had probably imagined would, in most cases, bear some proportion to the rent.

The first tax of this kind was hearth-money; or a tax of two shillings upon every
hearth. In order to ascertain how many hearths were in the house, it was necessary
that the tax-gatherer should enter every room in it. This odious visit rendered the tax
odious. Soon after the Revolution, therefore, it was abolished as a badge of slavery.

The next tax of this kind was a tax of two shillings upon every dwelling-house
inhabited. A house with ten windows to pay four shillings more. A house with twenty
windows and upwards to pay eight shillings. This tax was afterwards so far altered, that
houses with twenty windows, and with less than thirty, were ordered to pay ten shillings,
and those with thirty windows and upwards to pay twenty shillings. The number of
windows can, in most cases, be counted from the outside, and, in all cases, without
entering every room in the house. The visit of the tax-gatherer, therefore, was less
offensive in this tax than in the hearth-money.

This tax was afterwards repealed, and in the room of it was established the window-
tax, which has undergone two several alterations and augmentations. The window tax,

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as it stands at present (January 1775), over and above the duty of three shillings upon
every house in England, and of one shilling upon every house in Scotland, lays a duty
upon every window, which in England augments gradually from twopence, the lowest
rate upon houses with not more than seven windows, to two shillings, the highest rate
upon houses with twenty-five windows and upwards.

The principal objection to all such taxes is their inequality; an inequality of the
worst kind, as they must frequently fall much heavier upon the poor than upon the rich.
A house of ten pounds rent in a country town, may sometimes have more windows
than a house of five hundred pounds rent in London; and though the inhabitant of
the former is likely to be a much poorer man than that of the latter, yet, so far as his
contribution is regulated by the window tax, he must contribute more to the support
of the state. Such taxes are, therefore, directly contrary to the first of the four maxims
above mentioned. They do not seem to offend much against any of the other three.

The natural tendency of the window tax, and of all other taxes upon houses, is to
lower rents. The more a man pays for the tax, the less, it is evident, he can afford to
pay for the rent. Since the imposition of the window tax, however, the rents of houses
have, upon the whole, risen more or less, in almost every town and village of Great
Britain, with which I am acquainted. Such has been, almost everywhere, the increase
of the demand for houses, that it has raised the rents more than the window tax could
sink them; one of the many proofs of the great prosperity of the country, and of the
increasing revenue of its inhabitants. Had it not been for the tax, rents would probably
have risen still higher.

ARTICLE I.—Taxes upon Profit, or upon the Revenue arising from Stock.

The revenue or profit arising from stock naturally divides itself into two parts; that
which pays the interest, and which belongs to the owner of the stock; and that surplus
part which is over and above what is necessary for paying the interest.

This latter part of profit is evidently a subject not taxable directly. It is the
compensation, and, in most cases, it is no more than a very moderate compensation for
the risk and trouble of employing the stock. The employer must have this compensation,
otherwise he cannot, consistently with his own interest, continue the employment. If
he was taxed directly, therefore, in proportion to the whole profit, he would be obliged
either to raise the rate of his profit, or to charge the tax upon the interest of money;
that is, to pay less interest. If he raised the rate of his profit in proportion to the tax,
the whole tax, though it might be advanced by him, would be finally paid by one or
other of two different sets of people, according to the different ways in which he might
employ the stock of which he had the management. If he employed it as a farming
stock, in the cultivation of land, he could raise the rate of his profit only by retaining
a greater portion, or, what comes to the same thing, the price of a greater portion, of
the produce of the land; and as this could be done only by a reduction of rent, the
final payment of the tax would fall upon the landlord. If he employed it as a mercantile
or manufacturing stock, he could raise the rate of his profit only by raising the price

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of his goods; in which case, the final payment of the tax would fall altogether upon
the consumers of those goods. If he did not raise the rate of his profit, he would be
obliged to charge the whole tax upon that part of it which was allotted for the interest
of money. He could afford less interest for whatever stock he borrowed, and the whole
weight of the tax would, in this case, fall ultimately upon the interest of money. So far
as he could not relieve himself from the tax in the one way, he would be obliged to
relieve himself in the other.

The interest of money seems, at first sight, a subject equally capable of being taxed
directly as the rent of land. Like the rent of land, it is a neat produce, which remains,
after completely compensating the whole risk and trouble of employing the stock. As a
tax upon the rent of land cannot raise rents, because the neat produce which remains,
after replacing the stock of the farmer, together with his reasonable profit, cannot
be greater after the tax than before it, so, for the same reason, a tax upon the interest
of money could not raise the rate of interest; the quantity of stock or money in the
country, like the quantity of land, being supposed to remain the same after the tax as
before it. The ordinary rate of profit, it has been shewn, in the first book, is everywhere
regulated by the quantity of stock to be employed, in proportion to the quantity of
the employment, or of the business which must be done by it. But the quantity of the
employment, or of the business to be done by stock, could neither be increased nor
diminished by any tax upon the interest of money. If the quantity of the stock to be
employed, therefore, was neither increased nor diminished by it, the ordinary rate of
profit would necessarily remain the same. But the portion of this profit, necessary for
compensating the risk and trouble of the employer, would likewise remain the same;
that risk and trouble being in no respect altered. The residue, therefore, that portion
which belongs to the owner of the stock, and which pays the interest of money, would
necessarily remain the same too. At first sight, therefore, the interest of money seems
to be a subject as fit to be taxed directly as the rent of land.

There are, however, two different circumstances, which render the interest of
money a much less proper subject of direct taxation than the rent of land.

First, the quantity and value of the land which any man possesses, can never be a
secret, and can always be ascertained with great exactness. But the whole amount of
the capital stock which he possesses is almost always a secret, and can scarce ever be
ascertained with tolerable exactness. It is liable, besides, to almost continual variations.
A year seldom passes away, frequently not a month, sometimes scarce a single day,
in which it does not rise or fall more or less. An inquisition into every man’s private
circumstances, and an inquisition which, in order to accommodate the tax to them,
watched over all the fluctuations of his fortune, would be a source of such continual
and endless vexation as no person could suppott.

Secondly, land is a subject which cannot be removed; whereas stock easily may. The
proprietor of land is necessarily a citizen of the particular country in which his estate
lies. The proprietor of stock is properly a citizen of the world, and is not necessarily
attached to any particular country. He would be apt to abandon the country in which

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he was exposed to a vexatious inquisition, in order to be assessed to a burdensome tax;
and would remove his stock to some other country, where he could either carry on his
business, or enjoy his fortune more at his ease. By removing his stock, he would put
an end to all the industry which it had maintained in the country which he left. Stock
cultivates land; stock employs labour. A tax which tended to drive away stock from any
particular country, would so far tend to dry up every source of revenue, both to the
sovereign and to the society. Not only the profits of stock, but the rent of land, and the
wages of labour, would necessarily be more or less diminished by its removal.

The nations, accordingly, who have attempted to tax the revenue arising from stock,
instead of any severe inquisition of this kind, have been obliged to content themselves
with some very loose, and, therefore, more or less arbitrary estimation. The extreme
inequality and uncertainty of a tax assessed in this manner, can be compensated only
by its extreme moderation; in consequence of which, every man finds himself rated so
very much below his real revenue, that he gives himself little disturbance though his
neighbour should be rated somewhat lower.

By what is called the land tax in England, it was intended that the stock should
be taxed in the same proportion as land. When the tax upon land was at four shillings
in the pound, or at one-fifth of the supposed rent, it was intended that stock should
be taxed at one-fifth of the supposed interest. When the present annual land tax was
first imposed, the legal rate of interest was six per cent. Every hundred pounds stock,
accordingly, was supposed to be taxed at twenty-four shillings, the fifth part of six
pounds. Since the legal rate of interest has been reduced to five per cent. every hundred
pounds stock is supposed to be taxed at twenty shillings only. The sum to be raised, by
what is called the land tax, was divided between the country and the principal towns.
The greater part of it was laid upon the country; and of what was laid upon the towns,
the greater part was assessed upon the houses. What remained to be assessed upon the
stock or trade of the towns (for the stock upon the land was not meant to be taxed) was
very much below the real value of that stock or trade. Whatever inequalities, therefore,
there might be in the original assessment, gave little disturbance. Every parish and
district still continues to be rated for its land, its houses, and its stock, according to the
original assessment; and the almost universal prosperity of the country, which, in most
places, has raised very much the value of all these, has rendered those inequalities of still
less importance now. The rate, too, upon each district, continuing always the same, the
uncertainty of this tax, so far as it might he assessed upon the stock of any individual,
has been very much diminished, as well as rendered of much less consequence. If the
greater part of the lands of England are not rated to the land tax at half their actual
value, the greater part of the stock of England is, perhaps, scarce rated at the fiftieth
part of its actual value. In some towns, the whole land tax is assessed upon houses; as
in Westminster, where stock and trade are free. It is otherwise in London.

In all countries, a severe inquisition into the circumstances of private persons has
been carefully avoided.

At Hamburg, {Memoires concernant les Droits, tom. i, p.74} every inhabitant is

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obliged to pay to the state one fourth per cent. of all that he possesses; and as the wealth
of the people of Hamburg consists principally in stock, this tax maybe considered as
a tax upon stock. Every man assesses himself, and, in the presence of the magistrate,
puts annually into the public coffer a certain sum of money, which he declares upon
oath, to be one fourth per cent. of all that he possesses, but without declaring what it
amounts to, or being liable to any examination upon that subject. This tax is generally
supposed to be paid with great fidelity. In a small republic, where the people have
entire confidence in their magistrates, are convinced of the necessity of the tax for the
support of the state, and believe that it will be faithfully applied to that purpose, such
conscientious and voluntary payment may sometimes be expected. It is not peculiar to
the people of Hamburg,

The canton of Underwald, in Switzerland, is frequently ravaged by storms and
inundations, and it is thereby exposed to extraordinary expenses. Upon such occasions
the people assemble, and every one is said to declare with the greatest frankness what
he is worth, in order to be taxed accordingly. At Zurich, the law orders, that in cases
of necessity, every one should be taxed in proportion to his revenue; the amount of
which he is obliged to declare upon oath. They have no suspicion, it is said, that any
of their fellow citizens will deceive them. At Basil, the principal revenue of the state
arises from a small custom upon goods exported. All the citizens make oath, that they
will pay every three months all the taxes imposed by law. All merchants, and even all
inn-keepers, are trusted with keeping themselves the account of the goods which they
sell, either within or without the territory. At the end of every three months, they send
this account to the treasurer, with the amount of the tax computed at the bottom of it.
It is not suspected that the revenue suffers by this confidence. {Memoires concernant
les Droits, tom. i p. 163, 167,171.}

To oblige every citizen to declare publicly upon oath, the amount of his fortune,
must not, it seems, in those Swiss cantons, be reckoned a hardship. At Hamburg it
would be reckoned the greatest. Merchants engaged in the hazardous projects of trade,
all tremble at the thoughts of being obliged, at all times, to expose the real state of
their circumstances. The ruin of their credit, and the miscarriage of their projects,
they foresee, would too often be the consequence. A sober and parsimonious people,
who are strangers to all such projects, do not feel that they have occasion for any such
concealment.

In Holland, soon after the exaltation of the late prince of Orange to the
stadtholdership, a tax of two per cent. or the fiftieth penny, as it was called, was imposed
upon the whole substance of every citizen. Every citizen assesed himself, and paid his
tax, in the same manner as at Hamburg, and it was in general supposed to have been
paid with great fidelity. The people had at that time the greatest affection for their new
government, which they had just established by a general insurrection. The tax was to
be paid but once, in order to relieve the state ina particular exigency. It was, indeed, too
heavy to be permanent. In a country where the market rate of interest seldom exceeds
three per cent., a tax of two per cent. amounts to thirteen shillings and four pence in

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the pound, upon the highest neat revenue which is commonly drawn from stock. It is
a tax which very few people could pay, without encroaching more or less upon their
capitals. In a particular exigency, the people may, from great public zeal, make a great
effort, and give up even a part of their capital, in order to relieve the state. But it is
impossible that they should continue to do so for any considerable time; and if they
did, the tax would soon ruin them so completely, as to render them altogether incapable
of supporting the state.

The tax upon stock, imposed by the land tax bill in England, though itis proportioned
to the capital, is not intended to diminish or, take away any part of that capital. It is
meant only to be a tax upon the interest of money, proportioned to that upon the rent
of land; so that when the latter is at four shillings in the pound, the former may be at
four shillings in the pound too. The tax at Hamburg, and the still more moderate taxes
of Underwald and Zurich, are meant, in the same manner, to be taxes, not upon the
capital, but upon the interest or neat revenue of stock. That of Holland was meant to
be a tax upon the capital.

Taxes upon the Profit of particular Employments.

In some countries, extraordinary taxes ate imposed upon the profits of stock;
sometimes when employed in particular branches of trade, and sometimes when
employed in agriculture.

Of the former kind, are in England, the tax upon hawkers and pedlars, that upon
hackney-coaches and chairs, and that which the keepers of ale-houses pay for a licence
to retail ale and spiritous liquors. During the late war, another tax of the same kind
was proposed upon shops. The war having been undertaken, it was said, in defence of
the trade of the country, the merchants, who were to profit by it, ought to contribute
towards the support of it.

A tax, however, upon the profits of stock employed in any particular branch of
trade, can never fall finally upon the dealers (who must in all ordinary cases have their
reasonable profit, and, where the competition is free, can seldom have more than that
profit), but always upon the consumers, who must be obliged to pay in the price of the
goods the tax which the dealer advances; and generally with some overcharge.

A tax of this kind, when it is proportioned to the trade of the dealer, is finally
paid by the consumer, and occasions no oppression to the dealer. When it is not so
proportioned, but is the same upon all dealers, though in this case, too, it is finally
paid by the consumer, yet it favours the great, and occasions some oppression to the
small dealer. The tax of five shillings a-week upon every hackney coach, and that of
ten shillings a-year upon every hackney chair, so far as it is advanced by the different
keepers of such coaches and chairs, is exactly enough proportioned to the extent of
their respective dealings. It neither favours the great, nor oppresses the smaller dealer.
The tax of twenty shillings a-year for a licence to sell ale; of forty shillings for a licence
to sell spiritous liquors; and of forty shillings more for a licence to sell wine, being
the same upon all retailers, must necessarily give some advantage to the great, and
occasion some oppression to the small dealers. The former must find it more easy to

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ADAM SMITH

get back the tax in the price of their goods than the latter. The moderation of the tax,
however, renders this inequality of less importance; and it may to many people appear
not Improper to give some discouragement to the multiplication of little ale-houses.
The tax upon shops, it was intended, should be the same upon all shops. It could not
well have been otherwise. It would have been impossible to proportion, with tolerable
exactness, the tax upon a shop to the extent of the trade carried on in it, without such
an inquisition as would have been altogether insupportable in a free country. If the tax
had been considerable, it would have oppressed the small, and forced almost the whole
retail trade into the hands of the great dealers. The competition of the former being
taken away, the latter would have enjoyed a monopoly of the trade; and, like all other
monopolists, would soon have combined to raise their profits much beyond what was
necessary for the payment of the tax. The final payment, instead of falling upon the
shop-keeper, would have fallen upon the consumer, with a considerable overcharge to
the profit of the shop-keeper. For these reasons, the project of a tax upon shops was
laid aside, and in the room of it was substituted the subsidy, 1759.

What in France 1s called the personal taille, is perhaps, the most important tax upon
the profits of stock employed in agriculture, that is levied in any part of Europe.

In the disorderly state of Europe, during the prevalence of the feudal government,
the sovereign was obliged to content himself with taxing those who were too weak
to refuse to pay taxes. The great lords, though willing to assist him upon particular
emergencies, refused to subject themselves to any constant tax, and he was not strong
enough to force them. The occupiers of land all over Europe were, the greater part of
them, originally bond-men. Through the greater part of Europe, they were gradually
emancipated. Some of them acquired the property of landed estates, which they held
by some base or ignoble tenure, sometimes under the king, and sometimes under some
other great lord, like the ancient copy-holders of England. Others, without acquiring
the property, obtained leases for terms of years, of the lands which they occupied
under their lord, and thus became less dependent upon him. The great lords seem to
have beheld the degree of prosperity and independency, which this inferior order of
men had thus come to enjoy, with a malignant and contemptuous indignation, and
willingly consented that the sovereign should tax them. In some countries, this tax was
confined to the lands which were held in property by an ignoble tenure; and, in this
case, the taille was said to be real. The land tax established by the late king of Sardinia,
and the taille in the provinces of Languedoc, Provence, Dauphine, and Britanny; in the
generality of Montauban, and in the elections of Agen and Condom, as well as in some
other districts of France; are taxes upon lands held in property by an ignoble tenure.
In other countries, the tax was laid upon the supposed profits of all those who held, in
farm ot lease, lands belonging to other people, whatever might be the tenure by which
the proprietor held them; and in this case, the taille was said to be personal. In the
greater part of those provinces of France, which are called the countries of elections,
the taille is of this kind. The real taille, as it is imposed only upon a part of the lands
of the country, is necessarily an unequal, but it is not always an arbitrary tax, though

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it is so upon some occasions. The personal taille, as it is intended to be proportioned
to the profits of a certain class of people, which can only be guessed at, is necessarily
both arbitrary and unequal.

In France, the personal taille at present (1775) annually imposed upon the twenty
generalities, called the countries of elections, amounts to 40,107,239 livres, 16 sous.
{Memoires concernant les Droits, etc tom. ii, p.17.} the proportion in which this sum
is assessed upon those different provinces, varies from year to year, according to the
reports which are made to the king’s council concerning the goodness or badness of
the crops, as well as other circumstances, which may either increase or diminish their
respective abilities to pay. Each generality is divided into a certain number of elections;
and the proportion in which the sum imposed upon the whole generality is divided
among those different elections, varies likewise from year to year, according to the
reports made to the council concerning their respective abilities. It seems impossible,
that the council, with the best intentions, can ever proportion, with tolerable exactness,
either of these two assessments to the real abilities of the province or district upon
which they are respectively laid. Ignorance and misinformation must always, more or
less, mislead the most upright council. The proportion which each parish ought to
support of what is assessed upon the whole election, and that which each individual
ought to support of what is assessed upon his particular parish, are both in the same
manner varied from year to year, according as circumstances are supposed to require.
These circumstances are judged of, in the one case, by the officers of the election, in the
other, by those of the parish; and both the one and the other are, more or less, under
the direction and influence of the intendant. Not only ignorance and misinformation,
but friendship, party animosity, and private resentment, are said frequently to mislead
such assessors. No man subject to such a tax, it is evident, can ever be certain, before
he is assessed, of what he is to pay. He cannot even be certain after he is assessed. If
any person has been taxed who ought to have been exempted, or if any person has
been taxed beyond his proportion, though both must pay in the mean time, yet if they
complain, and make good their complaints, the whole parish is reimposed next year,
in order to reimburse them. If any of the contributors become bankrupt or insolvent,
the collector is obliged to advance his tax; and the whole parish is reimposed next year,
in order to reimburse the collector. If the collector himself should become bankrupt,
the parish which elects him must answer for his conduct to the receiver-general of the
election. But, as it might be troublesome for the receiver to prosecute the whole parish,
he takes at his choice five or six of the richest contributors, and obliges them to make
good what had been lost by the insolvency of the collector. The parish is afterwards
reimposed, in order to reimburse those five or six. Such reimpositions are always over
and above the taille of the particular year in which they are laid on.

When a tax is imposed upon the profits of stock in a particular branch of trade, the
traders are all careful to bring no more goods to market than what they can sell at a price
sufficient to reimburse them from advancing the tax. Some of them withdraw a part
of their stocks from the trade, and the market is more sparingly supplied than before.

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ADAM SMITH

The price of the goods rises, and the final payment of the tax falls upon the consumer.
But when a tax is imposed upon the profits of stock employed in agriculture, it is not
the interest of the farmers to withdraw any part of their stock from that employment.
Each farmer occupies a certain quantity of land, for which he pays rent. For the proper
cultivation of this land, a certain quantity of stock is necessary; and by withdrawing
any part of this necessary quantity, the farmer is not likely to be more able to pay either
the rent or the tax. In order to pay the tax, it can never be his interest to diminish the
quantity of his produce, nor consequently to supply the market more sparingly than
before. The tax, therefore, will never enable him to raise the price of his produce, so as
to reimburse himself, by throwing the final payment upon the consumer. The farmer,
however, must have his reasonable profit as well as every other dealer, otherwise he
must give up the trade. After the imposition of a tax of this kind, he can get this
reasonable profit only by paying less rent to the landlord. The more he is obliged to pay
in the way of tax, the less he can afford to pay in the way of rent. A tax of this kind,
imposed during the currency of a lease, may, no doubt, distress or ruin the farmer.
Upon the renewal of the lease, it must always fall upon the landlord.

In the countries where the personal taille takes place, the farmer is commonly
assessed in proportion to the stock which he appears to employ in cultivation. He
is, upon this account, frequently afraid to have a good team of horses or oxen, but
endeavours to cultivate with the meanest and most wretched instruments of husbandry
that he can. Such is his distrust in the justice of his assessors, that he counterfeits
poverty, and wishes to appear scarce able to pay anything, for fear of being obliged to
pay too much. By this miserable policy, he does not, perhaps, always consult his own
interest in the most effectual manner; and he probably loses more by the diminution of
his produce, than he saves by that of his tax. Though, in consequence of this wretched
cultivation, the market is, no doubt, somewhat worse supplied; yet the small rise of
price which this may occasion, as it is not likely even to indemnify the farmer for the
diminution of his produce, it is still less likely to enable him to pay more rent to the
landlord. The public, the farmer, the landlord, all suffer more or less by this degraded
cultivation. That the personal taille tends, in many different ways, to discourage
cultivation, and consequently to dry up the principal source of the wealth of every
great country, I have already had occasion to observe in the third book of this Inquiry.

What are called poll-taxes in the southern provinces of North America, and the
West India islands, annual taxes of so much a-head upon every negro, are properly
taxes upon the profits of a certain species of stock employed in agriculture. As the
planters, are the greater part of them, both farmers and landlords, the final payment of
the tax falls upon them in their quality of landlords, without any retribution.

Taxes of so much a head upon the bondmen employed in cultivation, seem
anciently to have been common all over Europe. There subsists at present a tax of
this kind in the empire of Russia. It is probably upon this account that poll-taxes of all
kinds have often been represented as badges of slavery. Every tax, however, is, to the
person who pays it, a badge, not of slavery, but of liberty. It denotes that he is subject

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_ THE WEALTH OF NATIONS

to government, indeed; but that, as he has some property, he cannot himself be the
property of a master. A poll tax upon slaves is altogether different from a poll-tax upon
freemen. The latter is paid by the persons upon whom it is imposed; the former, by a
different set of persons. The latter is either altogether arbitrary, or altogether unequal,
and, in most cases, is both the one and the other; the former, though in some respects
unequal, different slaves being of different values, is in no respect arbitrary. Every
master, who knows the number of his own slaves, knows exactly what he has to pay.
Those different taxes, however, being called by the same name, have been considered
as of the same nature.

The taxes which in Holland are imposed upon men and maid servants, are taxes,
not upon stock, but upon expense; and so far resemble the taxes upon consumable
commodities. The tax of a guinea a-head for every man-servant, which has lately been
imposed in Great Britain, is of the same kind. It falls heaviest upon the middling rank.
A man of two hundred a-year may keep a single man-servant. A man of ten thousand
a-year will not keep fifty. It does not affect the poor.

Taxes upon the profits of stock, in particular employments, can never affect the
interest of money. Nobody will lend his money for less interest to those who exercise
the taxed, than to those who exercise the untaxed employments. Taxes upon the revenue
arising from stock in all employments, where the government attempts to levy them
with any degree of exactness, will, in many cases, fall upon the interest of money. The
vingtieme, or twentieth penny, in France, is a tax of the same kind with what is called
the land tax in England, and is assessed, in the same manner, upon the revenue arising
upon land, houses, and stock. So far as it affects stock, it is assessed, though not with
great rigour, yet with much more exactness than that part of the land tax in England
which is imposed upon the same fund. It, in many cases, falls altogether upon the
interest of money. Money is frequently sunk in France, upon what are called contracts
for the constitution of a rent; that is, perpetual annuities, redeemable at any time by the
debtor, upon payment of the sum originally advanced, but of which this redemption is
not exigible by the creditor except in particular cases. The vingtieme seems not to have
raised the rate of those annuities, though it is exactly levied upon them all.

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ADAM SMITH

APPENDIX TO ARTICLES I. AND I.—

Taxes upon the Capital Value of Lands, Houses, and Stock.

While property remains in the possession of the same person, whatever permanent
taxes may have been imposed upon it, they have never been intended to diminish or
take away any part of its capital value, but only some part of the revenue arising from
it. But when property changes hands, when it is transmitted either from the dead to the
living, or from the living to the living, such taxes have frequently been imposed upon it
as necessarily take away some part of its capital value.

The transference of all sorts of property from the dead to the living, and that of
immoveable property of land and houses from the living to the living, are transactions
which are in their nature either public and notorious, or such as cannot be long
concealed. Such transactions, therefore, may be taxed directly. The transference of
stock or moveable property, from the living to the living, by the lending of money, is
frequently a secret transaction, and may always be made so. It cannot easily, therefore,
be taxed directly. It has been taxed indirectly in two different ways; first, by requiring
that the deed, containing the obligation to repay, should be written upon paper or
parchment which had paid a certain stamp duty, otherwise not to be valid; secondly,
by requiring, under the like penalty of invalidity, that it should be recorded either in a
public or secret register, and by imposing certain duties upon such registration. Stamp
duties, and duties of registration, have frequently been imposed likewise upon the
deeds transferring property of all kinds from the dead to the living, and upon those
transferring immoveable property from the living to the living; transactions which
might easily have been taxed directly.

The vicesima hereditatum, or the twentieth penny of inheritances, imposed by
Augustus upon the ancient Romans, was a tax upon the transference of property
from the dead to the living. Dion Cassius, { Lib. 55. See also Burman. de Vectigalibus
Pop. Rom. cap: xi. and Bouchaud de limpot du vingtieme sur les successions.} the
author who writes concerning it the least indistinctly, says, that it was imposed upon all
successions, legacies and donations, in case of death, except upon those to the nearest
relations, and to the poor.

Of the same kind is the Dutch tax upon successions. {See Memoires concernant
les Droits, etc. tom i, p. 225.} Collateral successions are taxed according to the degree
of relation, from five to thirty per cent. upon the whole value of the succession.
Testamentary donations, or legacies to collaterals, are subject to the like duties. Those
from husband to wife, or from wife to husband, to the fiftieth penny. The luctuosa
hereditas, the mournful succession of ascendants to descendants, to the twentieth
penny only. Direct successions, or those of descendants to ascendants, pay no tax. The
death of a father, to such of his children as live in the same house with him, is seldom

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THE WEALTH OF NATIONS

attended with any increase, and frequently with a considerable diminution of revenue;
by the loss of his industry, of his office, or of some life-rent estate, of which he may
have been in possession. That tax would be cruel and oppressive, which aggravated
their loss, by taking from them any part of his succession. It may, however, sometimes
be otherwise with those children, who, in the language of the Roman law, are said to be
emancipated; in that of the Scotch law, to be foris-familiated; that is, who have received
their portion, have got families of their own, and are supported by funds separate and
independent of those of their father. Whatever part of his succession might come to
such children, would be a real addition to their fortune, and might, therefore, perhaps,
without more inconveniency than what attends all duties of this kind, be liable to some
tax. The casualties of the feudal law were taxes upon the transference of land, both
from the dead to the living, and from the living to the living. In ancient times, they
constituted, in every part of Europe, one of the principal branches of the revenue of
the crown.

The heir of every immediate vassal of the crown paid a certain duty, generally
a year’s rent, upon receiving the investiture of the estate. If the heir was a minor,
the whole rents of the estate, during the continuance of the minority, devolved to
the superior, without any other charge besides the maintenance of the minor, and
the payment of the widow’s dower, when there happened to be a dowager upon the
land. When the minor came to de of age, another tax, called relief, was still due to the
superior, which generally amounted likewise to a year’s rent. A long minority, which, in
the present times, so frequently disburdens a great estate of all its incumbrances, and
restores the family to their ancient splendour, could in those times have no such effect.
The waste, and not the disincumbrance of the estate, was the common effect of a long
minority.

By a feudal law, the vassal could not alienate without the consent of his superior,
who generally extorted a fine or composition on granting it. This fine, which was at
first arbitrary, came, in many countries, to be regulated at a certain portion of the price
of the land. In some countries, where the greater part of the other feudal customs
have gone into disuse, this tax upon the alienation of land still continues to make a
very considerable branch of the revenue of the sovereign. In the canton of Berne it
is so high as a sixth part of the price of all noble fiefs, and a tenth part of that of all
ignoble ones. {Memoires concernant les Droits, etc, tom.i p.154} In the canton of
Lucern, the tax upon the sale of land is not universal, and takes place only in certain
districts. But if any person sells his land in order to remove out of the territory, he pays
ten per cent. upon the whole price of the sale. {id. p.157.} Taxes of the same kind,
upon the sale either of all lands, or of lands held by certain tenures, take place in many
other countries, and make a more or less considerable branch of the revenue of the
sovereign.

Such transactions may be taxed indirectly, by means either of stamp duties, or of
duties upon registration; and those duties either may, or may not, be proportioned to
the value of the subject which is transferred.

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ADAM SMITH

In Great Britain, the stamp duties are higher or lower, not so much according to
the value of the property transferred (an eighteen-penny or half-crown stamp being
sufficient upon a bond for the largest sum of money), as according to the nature of
the deed. The highest do not exceed six pounds upon every sheet of paper, or skin of
parchment; and these high duties fall chiefly upon grants from the crown, and upon
certain law proceedings, without any regard to the value of the subject. There are,
in Great Britain, no duties on the registration of deeds or writings, except the fees
of the officers who keep the register; and these are seldom more than a reasonable
recompence for their labour. The crown derives no revenue from them.

In Holland {Memoires concernant les Droits, etc. tom. i. p 223, 224, 225.} there are
both stamp duties and duties upon registration; which in some cases are, and in some
are not, proportioned to the value of the property transferred. All testaments must
be written upon stamped paper, of which the price is proportioned to the property
disposed of; so that there are stamps which cost from three pence or three stivers
a-sheet, to three hundred florins, equal to about twenty-seven pounds ten shillings
of our money. If the stamp is of an inferior price to what the testator ought to have
made use of, his succession is confiscated. This is over and above all their other taxes
on succession. Except bills of exchange, and some other mercantile bills, all other
deeds, bonds, and contracts, are subject to a stamp duty. This duty, however, does not
rise 1n proportion to the value of the subject. All sales of land and of houses, and all
mortgages upon either, must be registered, and, upon registration, pay a duty to the
state of two and a-half per cent. upon the amount of the price or of the mortgage.
This duty is extended to the sale of all ships and vessels of more than two tons burden,
whether decked or undecked. These, it seems, are considered as a sort of houses upon
the water. The sale of moveables, when it is ordered by a court of justice, is subject to
the like duty of two and a-half per cent.

In France, there are both stamp duties and duties upon registration. The former are
considered as a branch of the aids of excise, and, in the provinces where those duties
take place, are levied by the excise officers. The latter are considered as a branch of the
domain of the crown and are levied by a different set of officers.

Those modes of taxation by stamp duties and by duties upon registration, are of
very modern invention. In the course of little more than a century, however, stamp
duties have, in Europe, become almost universal, and duties upon registration extremely
common. There is no art which one government sooner learns of another, than that of
draining money from the pockets of the people.

Taxes upon the transference of property from the dead to the living, fall finally,
as well as immediately, upon the persons to whom the property is transferred. ‘Taxes
upon the sale of land fall altogether upon the seller. The seller is almost always under
the necessity of selling, and must, therefore, take such a price as he can get. The buyer
is scarce ever under the necessity of buying, and will, therefore, only give such a price
as he likes. He considers what the land will cost him, in tax and price together. The
mote he is obliged to pay in the way of tax, the less he will be disposed to give in the

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_ THE WEALTH OF NATIONS

way of price. Such taxes, therefore, fall almost always upon a necessitous person, and
must, therefore, be frequently very cruel and oppressive. Taxes upon the sale of new-
built houses, where the building is sold without the ground, fall generally upon the
buyer, because the builder must generally have his profit; otherwise he must give up the
trade. If he advances the tax, therefore, the buyer must generally repay it to him. Taxes
upon the sale of old houses, for the same reason as those upon the sale of land, fall
generally upon the seller; whom, in most cases, either conveniency or necessity obliges
to sell. The number of new-built houses that are annually brought to market, is more
or less regulated by the demand. Unless the demand is such as to afford the builder
his profit, after paying all expenses, he will build no more houses. The number of old
houses which happen at any time to come to market, is regulated by accidents, of which
the greater part have no relation to the demand. Two or three great bankruptcies in
a mercantile town, will bring many houses to sale, which must be sold for what can
be got for them. Taxes upon the sale of ground-rents fall altogether upon the seller,
for the same reason as those upon the sale of lands. Stamp duties, and duties upon
the registration of bonds and contracts for borrowed money, fall altogether upon the
borrower, and, in fact, are always paid by him. Duties of the same kind upon law
proceedings fall upon the suitors. They reduce to both the capital value of the subject
in dispute. The mote it costs to acquire any property, the less must be the neat value of
it when acquired.

All taxes upon the transference of property of every kind, so far as they diminish the
capital value of that property, tend to diminish the funds destined for the maintenance
of productive labour. They are all more or less unthrifty taxes that increase the revenue
of the sovereign, which seldom maintains any but unproductive labourers, at the
expense of the capital of the people, which maintains none but productive.

Such taxes, even when they are proportioned to the value of the property
transferred, are still unequal; the frequency of transference not being always equal in
property of equal value. When they are not proportioned to this value, which is the
case with the greater part of the stamp duties and duties of registration, they are still
more so. They are in no respect arbitrary, but are, or may be, in all cases, perfectly
clear and certain. Though they sometimes fall upon the person who is not very able to
pay, the time of payment is, in most cases, sufficiently convenient for him. When the
payment becomes due, he must, in most cases, have the more to pay. They are levied at
very little expense, and in general subject the contributors to no other inconveniency,
besides always the unavoidable one of paying the tax. In France, the stamp duties are
not much complained of. Those of registration, which they call the Controle, are. They
give occasion, it is pretended, to much extortion in the officers of the farmers-general
who collect the tax, which is in a great measure arbitrary and uncertain. In the greater
part of the libels which have been written against the present system of finances in
France, the abuses of the controle make a principal article. Uncertainty, however,
does not seem to be necessarily inherent in the nature of such taxes. If the popular
complaints are well founded, the abuse must arise, not so much from the nature of the

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ADAM SMITH

tax as from the want of precision and distinctness in the words of the edicts or laws
which impose it.

The registration of mortgages, and in general of all rights upon immoveable property,
as it gives great security both to creditors and purchasers, is extremely advantageous to
the public. That of the greater part of deeds of other kinds, is frequently inconvenient
and even dangerous to individuals, without any advantage to the public. All registers
which, it is acknowledged, ought to be kept secret, ought certainly never to exist. The
credit of individuals ought certainly never to depend upon so very slender a security,
as the probity and religion of the inferior officers of revenue. But where the fees
of registration have been made a source of revenue to the sovereign, register-offices
have commonly been multiplied without end, both for the deeds which ought to be
registered, and for those which ought not. In France there are several different sorts of
secret registers. This abuse, though not perhaps a necessary, it must be acknowledged,
is a very natural effect of such taxes.

Such stamp duties as those in England upon cards and dice, upon newspapers and
periodical pamphlets, etc. are properly taxes upon consumption; the final payment falls
upon the persons who use or consume such commodities. Such stamp duties as those
upon licences to retail ale, wine, and spiritous liquors, though intended, perhaps, to fall
upon the profits of the retailers, are likewise finally paid by the consumers of those
liquors. Such taxes, though called by the same name, and levied by the same officers,
and in the same manner with the stamp duties above mentioned upon the transference
of property, are, however, of a quite different nature, and fall upon quite different

funds.

ARTICLE II.—Taxes upon the Wages of Labour.

The wages of the inferior classes of work men, I have endeavoured to show in
the first book are everywhere necessarily regulated by two different circumstances;
the demand for labour, and the ordinary or average price of provisions. The demand
for labour, according as it happens to be either increasing stationary or declining; or
to require an increasing, stationary, or declining population, regulates the subsistence
of the labourer; and determines in what degree it shall be either liberal, moderate, or
scanty. The ordinary average price of provisions determines the quantity of money
ities must be paid to the workman, in order to enable him, one year with another, to
purchase this liberal, moderate, or scanty subsistence. While the demand for the labour
and the price of provisions, therefore, remain the same, a direct tax upon the wages of
labour can have no other effect, than to raise them somewhat higher than the tax. Let
us suppose, for example, that, ina particular place, the demand for labour and the price
of provisions were such as to render ten shillings a-week the ordinary wages of labour;
and that a tax of one-fifth, or four shillings in the pound, was imposed upon wages. If
the demand for labour and the price of provisions remained the same, it would still be
necessary that the labourer should, in that place, earn such a subsistence as could be
bought only for ten shillings a-week; so that, after paying the tax, he should have ten

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THE WEALTH OF NATIONS

shillings a-week free wages. But, in order to leave him such free wages, after paying such
a tax, the price of labour must, in that place, soon rise, not to twelve shillings a week
only, but to twelve and sixpence; that is, in order to enable him to pay a tax of one-fifth,
his wages must necessarily soon rise, not one-fifth part only, but one-fourth. Whatever
was the proportion of the tax, the wages of labour must, in all cases rise, not only in
that proportion, but in a higher proportion. If the tax for example, was one-tenth, the
wages of labour must necessarily soon rise, not one-tenth part only, but one-eighth.

A direct tax upon the wages of labour, therefore, though the labourer might,
perhaps, pay it out of his hand, could not properly be said to be even advanced by him;
at least if the demand for labour and the average price of provisions remained the same
after the tax as before it. In all such cases, not only the tax, but something more than
the tax, would in reality be advanced by the person who immediately employed him.
The final payment would, in different cases, fall upon different persons. The rise which
such a tax might occasion in the wages of manufacturing labour would be advanced by
the master manufacturer, who would both be entitled and obliged to charge it, with a
profit, upon the price of his goods. The final payment of this rise of wages, therefore,
together with the additional profit of the master manufacturer would fall upon the
consumer. The rise which such a tax might occasion in the wages of country labour
would be advanced by the farmer, who, in order to maintain the same number of
labourers as before, would be obliged to employ a greater capital. In order to get back
this greater capital, together with the ordinary profits of stock, it would be necessary
that he should retain a larger portion, or, what comes to the same thing, the price of a
larger portion, of the produce of the land, and, consequently, that he should pay less
rent to the landlord. The final payment of this rise of wages, therefore, would, in this
case, fall upon the landlord, together with the additional profit of the farmer who had
advanced it. In all cases, a direct tax upon the wages of labour must, in the long-run,
occasion both a greater reduction in the rent of land, and a greater rise in the price
of manufactured goods than would have followed from the proper assessment of a
sum equal to the produce of the tax, partly upon the rent of land, and partly upon
consumable commodities.

If direct taxes upon the wages of labour have not always occasioned a proportionable
rise in those wages, it is because they have generally occasioned a considerable fall in
the demand of labour. The declension of industry, the decrease of employment for the
poor, the diminution of the annual produce of the land and labour of the country, have
generally been the effects of such taxes. In consequence of them, however, the price
of labour must always be higher than it otherwise would have been in the actual state
of the demand; and this enhancement of price, together with the profit of those who
advance it, must always be finally paid by the landlords and consumers.

A tax upon the wages of country labour does not raise the price of the rude
produce of land in proportion to the tax; for the same reason that a tax upon the
farmet’s profit does not raise that price in that proportion.

Absurd and destructive as such taxes are, however, they take place in many countries.

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In France, that part of the taille which is charged upon the industry of workmen
and day-labourers in country villages, is properly a tax of this kind. Their wages ate
computed according to the common rate of the district in which they reside; and, that
they may be as little liable as possible to any overcharge, their yearly gains are estimated
at no more than two hundred working days in the year. {Memoires concernant les
Droits, etc. tom. ii. p. 108.} The tax of each individual is varied from year to yeat,
according to different circumstances, of which the collector or the commissaty, whom
intendant appoints to assist him, are the judges. In Bohemia, in consequence of the
alteration in the system of finances which was begun in 1748, a very heavy tax is
imposed upon the industry of artificers. They are divided into four classes. The highest
class pay a hundred florins a year, which, at two-and-twenty pence half penny a-florin,
amounts to £9:7:6. The second class are taxed at seventy; the third at fifty; and the
fourth, comprehending artificers in villages, and the lowest class of those in towns, at
twenty-five florins. {Memoires concemant les Droits, etc. tom. iii. p. 87.}

The recompence of ingenious artists, and of men of liberal professions, I have

endeavoured to show in the first book, necessarily keeps a certain proportion to the
‘emoluments of inferior trades. A tax upon this recompence, therefore, could have no
other effect than to raise it somewhat higher than in proportion to the tax. If it did
not rise in this manner, the ingenious arts and the liberal professions, being; no longer
upon a level with other trades, would be so much deserted, that they would soon return
to that level.

The emoluments of offices are not, like those of trades and professions, regulated by
the free competition of the market, and do not, therefore, always bear a just proportion
to what the nature of the employment requires. They are, perhaps, in most countries,
higher than it requires; the persons who have the administration of government being
generally disposed to regard both themselves and their immediate dependents, rather
more than enough. The emoluments of offices, therefore, can, in most cases, very
well bear to be taxed. The persons, besides, who enjoy public offices, especially the
more lucrative, are, in all countries, the objects of general envy; and a tax upon their
emoluments, even though it should be somewhat higher than upon any other sort of
revenue, is always a very popular tax. In England, for example, when, by the land-tax,
every other sort of revenue was supposed to be assessed at four shillings in the pound,
it was vety popular to lay a real tax of five shillings and sixpence in the pound upon
the salaries of offices which exceeded a hundred pounds a-year; the pensions of the
younger branches of the royal family, the pay of the officers of the army and navy, and
a few others less obnoxious to envy, excepted. There are in England no other direct

taxes upon the wages of labour.

ARTICLE IV—Taxes which it is intended should fall indifferently upon every

different Species of Revenue.
The taxes which it is intended should fall indifferently upon every different species
of revenue, ate capitation taxes, and taxes upon consumable commodities. Those must

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THE WEALTH OF NATIONS

be paid indifferently, from whatever revenue the contributors may possess; from the
rent of their land, from the profits of their stock, or from the wages of their labour.

Capitation Taxes.

Capitation taxes, if it is attempted to proportion them to the fortune or revenue of
each contributor, become altogether arbitrary. The state of a man’s fortune varies from
day to day; and, without an inquisition, more intolerable than any tax, and renewed at
least once every year, can only be guessed at. His assessment, therefore, must, in most
cases, depend upon the good or bad humour of his assessors, and must, therefore, be
altogether arbitrary and uncertain.

Capitation taxes, if they are proportioned, not to the supposed fortune, but to the
rank of each contributor, become altogether unequal; the degrees of fortune being
frequently unequal in the same degree of rank.

Such taxes, therefore, if it is attempted to render them equal, become altogether
arbitrary and uncertain; and if it is attempted to render them certain and not arbitrary,
become altogether unequal. Let the tax be light or heavy, uncertainty is always a great
gtievance. In a light tax, a considerable degree of inequality may be supported; in a
heavy one, it is altogether intolerable.

In the different poll-taxes which took place in England during the reign of William
IIL. the contributors were, the greater part of them, assessed according to the degree
of their rank; as dukes, marquises, earls, viscounts, barons, esquires, gentlemen, the
eldest and youngest sons of peers, etc. All shop-keepers and tradesmen worth more
than three hundred pounds, that is, the better sort of them, were subject to the same
assessment, how great soever might be the difference in their fortunes. Their rank was
more considered than their fortune. Several of those who, in the first poll-tax, were
rated according to their supposed fortune were afterwards rated according to their
rank. Serjeants, attorneys, and proctors at law, who, in the first poll-tax, were assessed
at three shillings in the pound of their supposed income, were afterwards assessed as
gentlemen. In the assessment of a tax which was not very heavy, a considerable degree
of inequality had been found less insupportable than any degree of uncertainty.

In the capitation which has been levied in France, without-any interruption, since
the beginning of the present century, the highest orders of people are rated according
to their rank, by an invariable tariff; the lower orders of people, according to what is
supposed to be their fortune, by an assessment which varies from year to year. The
officers of the king’s court, the judges, and other officers in the superior courts of
justice, the officers of the troops, etc are assessed in the first manner. The inferior
ranks of people in the provinces are assessed in the second. In France, the great easily
submit to a considerable degree of inequality in a tax which, so far as it affects them,
is not a very heavy one; but could not brook the arbitrary assessment of an intendant.

The inferior ranks of people must, in that country, suffer patiently the usage which
their superiors think proper to give them.

In England, the different poll-taxes never produced the sum which had been
expected from them, or which it was supposed they might have produced, had they

628

ADAM SMITH

been exactly levied. In France, the capitation always produces the sum expected from it.
The mild government of England, when it assessed the different ranks of people to the
poll-tax, contented itself with what that assessment happened to produce, and required
no compensation for the loss which the state might sustain, either by those who could
not pay, or by those who would not pay (for there were many such), and who, by the
indulgent execution of the law, were not forced to pay. The more severe government
of France assesses upon each generality a certain sum, which the intendant must find as
he can. If any province complains of being assessed too high, it may, in the assessment
of next year, obtain an abatement proportioned to the overcharge of the year before;
but it must pay in the mean time. The intendant, in order to be sure of finding the sum
assessed upon his generality, was empowered to assess it in a larger sum, that the failure
or inability of some of the contributors might be compensated by the overcharge of
the rest; and till 1765, the fixation of this surplus assessment was left altogether to
his discretion. In that year, indeed, the council assumed this power to itself. In the
capitation of the provinces, it is observed by the perfectly well informed author of the
Memoirs upon the Impositions in France, the proportion which falls upon the nobility,
and upon those whose privileges exempt them from the taille, is the least considerable.
The largest falls upon those subject to the taille, who are assessed to the capitation at
so much a-pound of what they pay to that other tax. Capitation taxes, so far as they are
levied upon the lower ranks of people, are direct taxes upon the wages of labour, and
are attended with all the inconveniencies of such taxes.

Capitation taxes are levied at little expense; and, where they are rigorously exacted,
afford a very sure revenue to the state. It is upon this account that, in countries where
the case, comfort, and security of the inferior ranks of people are little attended to,
capitation taxes are very common. It is in general, however, but a small part of the
public revenue, which, in a great empire, has ever been drawn from such taxes; and the
greatest sum which they have ever afforded, might always have been found in some
other way much more convenient to the people.

Taxes upon Consumable Commodities.

The impossibility of taxing the people, in proportion to their revenue, by any
capitation, seems to have given occasion to the invention of taxes upon consumable
commodities. The state not knowing how to tax, directly and proportionably, the
revenue of its subjects, endeavours to tax it indirectly by taxing their expense, which, it
is supposed, will, in most cases, be nearly in proportion to their revenue. Their expense
is taxed, by taxing the consumable commodities upon which it is laid out.

Consumable commodities are either necessaries or luxuries.

By necessaries I understand, not only the commodities which are indispensibly
necessary for the support of life, but whatever the custom of the country renders it
indecent for creditable people, even of the lowest order, to be without. A linen shirt,
for example, is, strictly speaking, not a necessary of life. The Greeks and Romans
lived, I suppose, very comfortably, though they had no linen. But in the present times,
through the greater part of Europe, a creditable day-labourer would be ashamed to

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THE WEALTH OF NATIONS

appear in public without a linen shirt, the want of which would be supposed to denote
that disgraceful degree of poverty, which, it is presumed, nobody can well fall into
without extreme bad conduct. Custom, in the same manner, has rendered leather shoes
a necessary of life in England. The poorest creditable person, of either sex, would be
ashamed to appear in public without them. In Scotland, custom has rendered them a
necessary of life to the lowest order of men; but not to the same order of women,
who may, without any discredit, walk about barefooted. In France, they are necessaries
neither to men nor to women; the lowest rank of both sexes appearing there publicly,
without any discredit, sometimes in wooden shoes, and sometimes barefooted. Under
necessaries, therefore, I comprehend, not only those things which nature, but those
things which the established rules of decency have rendered necessary to the lowest
rank of people. All other things I call luxuries, without meaning, by this appellation, to
throw the smallest degree of reproach upon the temperate use of them. Beer and ale,
for example, in Great Britain, and wine, even in the wine countries, I call luxuries. AN
man of any rank may, without any reproach, abstain totally from tasting such liquors.
Nature does not render them necessary for the support of life; and custom nowhere
renders it indecent to live without them.

As the wages of labour are everywhere regulated, partly by the demand for it, and
partly by the average price of the necessary articles of subsistence; whatever raises this
average price must necessarily raise those wages; so that the labourer may still be able
to purchase that quantity of those necessary articles which the state of the demand for
labour, whether increasing, stationary, or declining, requires that he should have. {See
book i.chap. 8} A tax upon those articles necessarily raises their price somewhat higher
than the amount of the tax, because the dealer, who advances the tax, must generally
get it back, with a profit. Such a tax must, therefore, occasion a rise in the wages of
labour, proportionable to this rise of price.

It is thus that a tax upon the necessaries of life operates exactly in the same manner
as a direct tax upon the wages of labour. The labourer, though he may pay it out of his
hand, cannot, for any considerable time at least, be properly said even to advance it.
It must always, in the long-run, be advanced to him by his immediate employer, in the
advanced state of wages. His employer, if he is a manufacturer, will charge upon the
price of his goods the rise of wages, together with a profit, so that the final payment
of the tax, together with this overcharge, will fall upon the consumer. If his employer
is a farmer, the final payment, together with a like overcharge, will fall upon the rent
of the landlord.

It is otherwise with taxes upon what I call luxuries, even upon those of the poor.
The rise in the price of the taxed commodities, will not necessarily occasion any rise in
the wages of labour. A tax upon tobacco, for example, though a luxury of the poor, as
well as of the rich, will not raise wages. Though it is taxed in England at three times,
and in France at fifteen times its original price, those high duties seem to have no effect
upon the wages of labour. The same thing maybe said of the taxes upon tea and sugar,
which, in England and Holland, have become luxuries of the lowest ranks of people;

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ADAM SMITH

and of those upon chocolate, which, in Spain, is said to have become so.

The different taxes which, in Great Britain, have, in the course of the present
century, been imposed upon spiritous liquors, are not supposed to have had any effect
upon the wages of labour. The rise in the price of porter, occasioned by an additional
tax of three shillings upon the barrel of strong beer, has not raised the wages of
common labour in London. These were about eighteen pence or twenty pence a-day
before the tax, and they are not more now.

The high price of such commodities does not necessarily diminish the ability
of the inferior ranks of people to bring up families. Upon the sober and industrious
poor, taxes upon such commodities act as sumptuary laws, and dispose them either
to moderate, or to refrain altogether from the use of superfluities which they can no
longer easily afford. Their ability to bring up families, in consequence of this forced
frugality, instead of being diminished, is frequently, perhaps, increased by the tax. It is
the sober and industrious poor who generally bring up the most numerous families,
and who principally supply the demand for useful labour. All the poor, indeed, are
not sober and industrious; and the dissolute and disorderly might continue to indulge
themselves in the use of such commodities, after this rise of price, in the same manner
as before, without regarding the distress which this indulgence might bring upon their
families. Such disorderly persons, however, seldom rear up numerous families, their
children generally perishing from neglect, mismanagement, and the scantiness or
unwholesomeness of their food. If by the strength of their constitution, they survive
the hardships to which the bad conduct of their parents exposes them, yet the example
of that bad conduct commonly corrupts their morals; so that, instead of being useful
to society by their industry, they become public nuisances by their vices and disorders.
Through the advanced price of the luxuries of the poor, therefore, might increase
somewhat the distress of such disorderly families, and thereby diminish somewhat their
ability to bring up children, it would not probably diminish much the useful population
of the country.

Any rise in the average price of necessaries, unless it be compensated by a
proportionable rise in the wages of labour, must necessarily diminish, more or less,
the ability of the poor to bring up numerous families, and, consequently, to supply
the demand for useful labour; whatever may be the state of that demand, whether
increasing, stationary, or declining; or such as requires an increasing, stationary, or
declining population.

Taxes upon luxuries have no tendency to raise the price of any other commodities,
except that of the commodities taxed. Taxes upon necessaries, by raising the wages
of labour, necessarily tend to raise the price of all manufactures, and consequently
to diminish the extent of their sale and consumption. Taxes upon luxuries are finally
paid by the consumers of the commodities taxed, without any retribution. They fall
indifferently upon every species of revenue, the wages of labour, the profits of stock,
and the rent of land. Taxes upon necessaries, so far as they affect the labouring poor, are
finally paid, partly by landlords, in the diminished rent of their lands, and partly by rich

631

THE WEALTH OF NATIONS 6

consumers, whether landlords or others, in the advanced price of manufactured goods;
and always with a considerable overcharge. The advanced price of such manufactures as
are real necessaries of life, and are destined for the consumption of the poor, of coarse
woollens, for example, must be compensated to the poor by a farther advancement
of their wages. The middling and superior ranks of people, if they understood their
own interest, ought always to oppose all taxes upon the necessaries of life, as well as
all taxes upon the wages of labour. The final payment of both the one and the other
falls altogether upon themselves, and always with a considerable overcharge. They fall
heaviest upon the landlords, who always pay in a double capacity; in that of landlords,
by the reduction, of their rent; and in that of rich consumers, by the increase of their
expense. The observation of Sir Matthew Decker, that certain taxes are, in the price of
certain goods, sometimes repeated and accumulated four or five times, is perfectly just
with regard to taxes upon the necessaries of life. In the price of leather, for example,
you must pay not only for the tax upon the leather of your own shoes, but for a part of
that upon those of the shoemaker and the tanner. You must pay, too, for the tax upon
the salt, upon the soap, and upon the candles which those workmen consume while
employed in your service; and for the tax upon the leather, which the saltmaker, the
soap-maker, and the candle-maker consume, while employed in their service.

In Great Britain, the principal taxes upon the necessaries of life, are those upon the
four commodities just now mentioned, salt, leather, soap, and candles.

Salt is a very ancient and a very universal subject of taxation. It was taxed among
the Romans, and it is so at present in, I believe, every part of Europe. The quantity
annually consumed by any individual is so small, and may be purchased so gradually,
that nobody, it seems to have been thought, could feel very sensibly even a pretty heavy
tax upon it. It is in England taxed at three shillings and fourpence a bushel; about
three times the original price of the commodity. In some other countries, the tax is
still higher. Leather is a real necessary of life. The use of linen renders soap such. In
countries where the winter nights are long, candles are a necessary instrument of trade.
Leather and soap are in Great Britain taxed at three halfpence a-pound; candles at a
penny; taxes which, upon the original price of leather, may amount to about eight or
ten per cent.; upon that of soap, to about twenty or five-and-twenty per cent.; and upon
that of candles to about fourteen or fifteen per cent.; taxes which, though lighter than
that upon salt, are still very heavy. As all those four commodities are real necessaries of
life, such heavy taxes upon them must increase somewhat the expense of the sober and
industrious poor, and must consequently raise more or less the wages of their labour.

In a country where the winters are so cold as in Great Britain, fuel is, during that
season, in the strictest sense of the word, a necessary of life, not only for the purpose
of dressing victuals, but for the comfortable subsistence of many different sorts of
workmen who work within doors; and coals are the cheapest of all fuel. The price
of fuel has so important an influence upon that of labour, that all over Great Britain,
manufactures have confined themselves principally to the coal counties; other parts
of the country, on account of the high price of this necessary article, not being able

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ADAM SMITH

to work so cheap. In some manufactures, besides, coal is a necessary instrument of
trade; as in those of glass, iron, and all other metals. If a bounty could in any case
be reasonable, it might perhaps be so upon the transportation of coals from those
parts of the country in which they abound, to those in which they are wanted. But the
legislature, instead of a bounty, has imposed a tax of three shillings and threepence
a-ton upon coals carried coastways; which, upon most sorts of coal, is more than sixty
pet cent. of the original price at the coal pit. Coals carried, either by land or by inland
navigation, pay no duty. Where they are naturally cheap, they are consumed duty free;
where they are naturally dear, they are loaded with a heavy duty.

Such taxes, though they raise the price of subsistence, and consequently the wages
of labour, yet they afford a considerable revenue to government, which it might not
be easy to find in any other way. There may, therefore, be good reasons for continuing
them. The bounty upon the exportation of corn, so far us it tends, in the actual state
of tillage, to raise the price of that necessary article, produces all the like bad effects;
and instead of affording any revenue, frequently occasions a very great expense to
government. The high duties upon the importation of foreign corn, which, in years
of moderate plenty, amount to a prohibition; and the absolute prohibition of the
importation, either of live cattle, or of salt provisions, which takes place in the ordinary
state of the law, and which, on account of the scarcity, is at present suspended for a
limited time with regard to Ireland and the British plantations, have all had the bad
effects of taxes upon the necessaries of life, and produce no revenue to government.
Nothing seems necessary for the repeal of such regulations, but to convince the public
of the futility of that system in consequence of which they have been established.

Taxes upon the necessaries of life are much higher in many other countries than
in Great Britain. Duties upon flour and meal when ground at the mill, and upon
bread when baked at the oven, take place in many countries. In Holland the money-
price of the: bread consumed in towns is supposed to be doubled by means of such
taxes. In lieu of a part of them, the people who live in the country, pay every year so
much a-head, according to the sort of bread they are supposed to consume. Those
who consume wheaten bread pay three guilders fifteen stivers; about six shillings and
ninepence halfpenny. Those, and some other taxes of the same kind, by raising the
price of labour, are said to have ruined the greater part of the manufactures of Holland
{Memoires concernant les Droits, etc. p. 210, 211.}. Similar taxes, though not quite so
heavy, take place in the Milanese, in the states of Genoa, in the duchy of Modena, in
the duchies of Parma, Placentia, and Guastalla, and the Ecclesiastical state. A French
author {Le Reformateur} of some note, has proposed to reform the finances of
his country, by substituting in the room of the greater part of other taxes, this most
ruinous of all taxes. There is nothing so absurd, says Cicero, which has not sometimes
been asserted by some philosophers.

Taxes upon butcher’s meat are still more common than those upon bread. It may
indeed be doubted, whether butcher’s meat is any where a necessary of life. Grain and
other vegetables, with the help of milk, cheese, and butter, or oil, where butter is not to

633

THE WEALTH OF NATIONS - —r—ti‘<“—sSséS<‘é‘(<(<;S

be had, it is known from experience, can, without any butcher's meat, afford the most
plentiful, the most wholesome, the most nourishing, and the most invigorating diet.
Decency nowhere requires that any man should eat butcher’s meat, as it in most places
requires that he should wear a linen shirt or a pair of leather shoes.

Consumable commodities, whether necessaries or luxuries, may be taxed in two
different ways. The consumer may either pay an annual sum on account of his using or
consuming goods of a certain kind; or the goods may be taxed while they remain in the
hands of the dealer, and before they are delivered to the consumer. The consumable
goods which last a considerable time before they are consumed altogether, are most
properly taxed in the one way; those of which the consumption is either immediate
or more speedy, in the other. The coach-tax and plate tax are examples of the former
method of imposing; the greater part of the other duties of excise and customs, of
the latter.

A coach may, with good management, last ten or twelve years. It might be taxed,
once for all, before it comes out of the hands of the coach-maker. But it is certainly
more convenient for the buyer to pay four pounds a-year for the privilege of keeping a
coach, than to pay all at once forty or forty-eight pounds additional price to the coach-
maker; or a sum equivalent to what the tax is likely to cost him during the time he uses
the same coach. A service of plate in the same manner, may last more than a century.
It is certainly-easier for the consumer to pay five shillings a-year for every hundred
ounces of plate, near one per cent. of the value, than to redeem this long annuity at
five-and-twenty or thirty years purchase, which would enhance the price at least five-
and-twenty or thirty per cent. The different taxes which affect houses, are certainly
more conveniently paid by moderate annual payments, than by a heavy tax of equal
value upon the first building or sale of the house.

It was the well-known proposal of Sir Matthew Decker, that all commodities, even
those of which the consumption is either immediate or speedy, should be taxed in this
manner; the dealer advancing nothing, but the consumer paying a certain annual sum
for the licence to consume certain goods. The object of his scheme was to promote
all the different branches of foreign trade, particularly the carrying trade, by taking
away all duties upon importation and exportation, and thereby enabling the merchant
to employ his whole capital and credit in the purchase of goods and the freight of
ships, no part of either being diverted towards the advancing of taxes, The project,
however, of taxing, in this manner, goods of immediate or speedy consumption, seems
liable to the four following very important objections. First, the tax would be more
unequal, or not so well proportioned to the expense and consumption of the different
contributors, as in the way in which it is commonly imposed. The taxes upon ale, wine,
and spiritous liquors, which are advanced by the dealers, are finally paid by the different
consumers, exactly in proportion to their respective consumption. But if the tax were
to be paid by purchasing a licence to drink those liquors, the sober would, in proportion
to his consumption, be taxed much more heavily than the drunken consumer. A family
which exercised great hospitality, would be taxed much more lightly than one who

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ADAM SMITH

_ entertained fewer guests. Secondly, this mode of taxation, by paying for an annual,
half-yearly, or quarterly licence to consume certain goods, would diminish very much

one of the principal conveniences of taxes upon goods of speedy consumption; the
piece-meal payment. In the price of threepence halfpenny, which is at present paid
for a pot of porter, the different taxes upon malt, hops, and beer, together with the
extraordinary profit which the brewer charges for having advanced than, may perhaps
amount to about three halfpence. If a workman can conveniently spare those three
halfpence, he buys a pot of porter. If he cannot, he contents himself with a pint; and,
as a penny saved is a penny got, he thus gains a farthing by his temperance. He pays the
tax piece-meal, as he can afford to pay it, and when he can afford to Pay it, and every act
of payment is perfectly voluntary, and what he can avoid if he chuses to do so. Thirdly,
such taxes would operate less as sumptuary laws. When the licence was once purchased,
whether the purchaser drunk much or drunk little, his tax would be the same. Fourthly,
if a workman were to pay all at once, by yearly, half-yearly, or quarterly payments, a tax
equal to what he at present pays, with little or no inconveniency, upon all the different
pots and pints of porter which he drinks in any such period of time, the sum might
frequently distress him very much. This mode of taxation, therefore, it seems evident,
could never, without the most grievous oppression, produce a revenue neatly equal to
what is derived from the present mode without any oppression. In several countries,
however, commodities of an immediate or very speedy consumption are taxed in this
manner. In Holland, people pay so much a-head for a licence to drink tea. I have
already mentioned a tax upon bread, which, so far as it is consumed in farm houses and
country villages, is there levied in the same manner.

The duties of excise are imposed chiefly upon goods of home produce, destined
for home consumption. They ate imposed only upon a few sorts of goods of the most
general use. There can never be any doubt, either concerning the goods which are
subject to those duties, or concerning the particular duty which each species of goods
is subject to. They fall almost altogether upon what I call luxuries, excepting always the
four duties above mentioned, upon salt, soap, leather, candles, and perhaps that upon
green glass.

The duties of customs are much more ancient than those of excise. They seem to
have been called customs, as denoting customary payments, which had been in use for
time immemorial. They appear to have been originally considered as taxes upon the
profits of merchants. During the barbarous times of feudal anarchy, merchants, like
all the other inhabitants of burghs, were considered as little better than emancipated
bondmen, whose persons were despised, and whose gains were envied. The great
nobility, who had consented that the king should tallage the profits of their own tenants,
were not unwilling that he should tallage likewise those of an order of men whom it
was much less their interest to protect. In those ignorant times, it was not understood,
that the profits of merchants are a subject not taxable directly; or that the final payment
of all such taxes must fall, with a considerable overcharge, upon the consumers.

The gains of alien merchants were looked upon more unfavourably than those

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THE WEALTH OF NATIONS

of English merchants. It was natural, therefore, that those of the former should be
taxed more heavily than those of the latter. This distinction between the duties upon
aliens and those upon English merchants, which was begun from ignorance, has been
continued front the spirit of monopoly, or in order to give our own merchants an
advantage, both in the home and in the foreign market.

With this distinction, the ancient duties of customs were imposed equally upon
all sorts of goods, necessaries as well its luxuries, goods exported as well as goods
imported. Why should the dealers in one sort of goods, it seems to have been thought,
be more favoured than those in another? or why should the merchant exporter be more
favoured than the merchant importer?

The ancient customs were divided into three branches. The first, and, perhaps, the
most ancient of all those duties, was that upon wool and leather. It seems to have been
chiefly or altogether an exportation duty. When the woollen manufacture came to be
established in England, lest the king should lose any part of his customs upon wool
by the exportation of woollen cloths, a like duty was imposed upon them. The other
two branches were, first, a duty upon wine, which being imposed at so much a-ton, was
called a tonnage; and, secondly, a duty upon all other goods, which being imposed at
so much a-pound of their supposed value, was called a poundage. In the forty-seventh
year of Edward III., a duty of sixpence in the pound was imposed upon all goods
exported and imported, except wools, wool-felts, leather, and wines which were subject
to particular duties. In the fourteenth of Richard II., this duty was raised to one shilling
in the pound; but, three years afterwards, it was again reduced to sixpence. It was raised
to eightpence in the second year of Henry IV.; and, in the fourth of the same prince,
to one shilling. From this time to the ninth year of William III., this duty continued at
one shilling in the pound. The duties of tonnage and poundage were generally granted
to the king by one and the same act of parliament, and were called the subsidy of
tonnage and poundage. The subsidy of poundage having continued for so long a time
at one shilling in the pound, or at five per cent., a subsidy came, in the language of the
customs, to denote a general duty of this kind of five per cent. This subsidy, which is
now called the old subsidy, still continues to be levied, according to the book of rates
established by the twelfth of Charles II. The method of ascertaining, by a book of
rates, the value of goods subject to this duty, is said to be older than the time of James
I. The new subsidy, imposed by the ninth and tenth of William I., was an additional
five per cent. upon the greater part of goods. The one-third and the two-third subsidy
made up between them another five per cent. of which they were proportionable parts.
The subsidy of 1747 made a fourth five per cent. upon the greater part of goods; and
that of 1759, a fifth upon some particular sorts of goods. Besides those five subsidies,
a great variety of other duties have occasionally been imposed upon particular sorts
of goods, in order sometimes to relieve the exigencie’s of the state, and sometimes to
regulate the trade of the country, according to the principles of the mercantile system.

That system has come gradually more and more into fashion. The old subsidy was
imposed indifferently upon exportation, as well as importation. The four subsequent

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ADAM SMITH

subsidies, as well as the other duties which have since been occasionally imposed
upon particular sorts of goods, have, with a few exceptions, been laid altogether upon
importation. The greater part of the ancient duties which had been imposed upon the
exportation of the goods of home produce and manufacture, have either been lightened
or taken away altogether. In most cases, they have been taken away. Bounties have
even been given upon the exportation of some of them. Drawbacks, too, sometimes
of the whole, and, in most cases, of a part of the duties which are paid upon the
importation of foreign goods, have been granted upon their exportation. Only half the
duties imposed by the old subsidy upon importation, are drawn back upon exportation;
but the whole of those imposed by the latter subsidies and other imposts are, upon the
greater parts of the goods, drawn back in the same manner. This growing favour of
exportation, and discouragement of importation, have suffered only a few exceptions,
which chiefly concern the materials of some manufactures. These our merchants and
manufacturers are willing should come as cheap as possible to themselves, and as dear
as possible to their rivals and competitors in other countries. Foreign materials are,
upon this account, sometimes allowed to be imported duty-free; spanish wool, for
example, flax, and raw linen yarn. The exportation of the materials of home produce,
and of those which are the particular produce of our colonies, has sometimes been
prohibited, and sometimes subjected to higher duties. The exportation of English wool
has been prohibited. That of beaver skins, of beaver wool, and of gum-senega, has
been subjected to higher duties; Great Britain, by the conquests of Canada and Senegal,
having got almost the monopoly of those commodities.

That the mercantile system has not been very favourable to the revenue of the
great body of the people, to the annual produce of the land and labour of the country,
I have endeavoured to show in the fourth book of this Inquiry. It seems not to have
been more favourable to the revenue of the sovereign; so far, at least, as that revenue
depends upon the duties of customs.

In consequence of that system, the importation of several sorts of goods has been
prohibited altogether. This prohibition has, in some cases, entirely prevented, and in
others has very much diminished, the importation of those commodities, by reducing
the importers to the necessity of smuggling, It has entirely prevented the importation
of foreign wollens; and it has very much diminished that of foreign silks and velvets,
In both cases, it has entirely annihilated the revenue of customs which might have been
levied upon such importation.

The high duties which have been imposed upon the importation of many different
sorts of foreign goods in order to discourage their consumption in Great Britain, have,
in many cases, served only to encourage smugeling, and, in all cases, have reduced the
revenues of the customs below what more moderate duties would have afforded. The
saying of Dr. Swift, that in the arithmetic of the customs, two and two, instead of
making four, make sometimes only one, holds perfectly true with regard to such heavy
duties, which never could have been imposed, had not the mercantile system taught us,
in many cases, to employ taxation as an instrument, not of revenue, but of monopoly.

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THE WEALTH OF NATIONS

The bounties which are sometimes given upon the exportation of home produce
and manufactures, and the drawbacks which are paid upon the re-exportation of the
greater part of foreign goods, have given occasion to many frauds, and to a species of
smuggling, more destructive of the public revenue than any other. In order to obtain
the bounty or drawback, the goods, it is well known, are sometimes shipped, and sent
to sea, but soon afterwards clandestinely re-landed in some other part of the country.
The defalcation of the revenue of customs occasioned by bounties and drawbacks, of
which a great part are obtained fraudulently, is very great. The gross produce of the
customs, in the year which ended on the 5th of January 1755, amounted to £5,068,000.
The bounties which were paid out of this revenue, though in that year there was no
bounty upon corn, amounted to £167,806. The drawbacks which were paid upon
debentures and certificates, to £2,156,800. Bounties and drawbacks together amounted
to £2,324,600. In consequence of these deductions, the revenue of the customs
amounted only to £2,743,400; from which deducting £287,900 for the expense of
management, in salaries and other incidents, the neat revenue of the customs for
that year comes out to be £2,455,500. The expense of management, amounts, in this
manner, to between five and six per cent. upon the gross revenue of the customs;
and to something more than ten per cent. upon what remains of that revenue, after
deducting what is paid away in bounties and drawbacks.

Heavy duties being imposed upon almost all goods imported, our merchant
importers smuggle as much, and make entry of as little as they can. Our merchant
exporters, on the contrary, make entry of more than they export; sometimes out of
vanity, and to pass for great dealers in goods which pay no duty gain a bounty back.
Our exports, in consequence of these different frauds, appear upon the custom-
house books greatly to overbalance our imports, to the unspeakable comfort of those
politicians, who measure the national prosperity by what they call the balance of trade.

All goods imported, unless particularly exempted, and such exemptions are not
very numerous, are liable to some duties of customs. If any goods are imported, not
mentioned in the book of rates, they are taxed at 4s:9°/d. for every twenty shillings
value, according to the oath of the importer, that is, nearly at five subsidies, or five
poundage duties. The book of rates is extremely comprehensive, and enumerates a
great variety of articles, many of them little used, and, therefore, not well known. It is,
upon this account, frequently uncertain under what article a particular sort of goods
ought to be classed, and, consequently what duty they ought to pay. Mistakes with
regard to this sometimes ruin the custom-house officer, and frequently occasion much
trouble, expense, and vexation to the importer. In point of perspicuity, precision, and
distinctness, therefore, the duties of customs are much inferior to those of excise.

In order that the greater part of the members of any society should contribute to
the public revenue, in proportion to their respective expense, it does not seem necessary
that every single article of that expense should be taxed. The revenue which is levied
by the duties of excise is supposed to fall as equally upon the contributors as that
which is levied by the duties of customs; and the duties of excise are imposed upon a

638

ADAM SMITH

few articles only of the most general used and consumption. It has been the opinion
of many people, that, by proper management, the duties of customs might likewise,
without any loss to the public revenue, and with great advantage to foreign trade, be
confined to a few articles only.

The foreign articles, of the most general use and consumption in Great Britain,
seem at present to consist chiefly in foreign wines and brandies; in some of the
productions of America and the West Indies, sugar, rum, tobacco, cocoa-nuts, etc.
and in some of those of the East Indies, tea, coffee, china-ware, spiceries of all kinds,
several sorts of piece-goods, etc. These different articles afford, the greater part of
the perhaps, at present, revenue which is drawn from the duties of customs. The taxes
which at present subsist upon foreign manufactures, if you except those upon the few
contained in the foregoing enumeration, have, the greater part of them, been imposed
for the purpose, not of revenue, but of monopoly, or to give our own merchants
an advantage in the home market. By removing all prohibitions, and by subjecting
all foreign manufactures to such moderate taxes, as it was found from experience,
afforded upon each article the greatest revenue to the public, our own workmen might
still have a considerable advantage in the home market; and many articles, some of
which at present afford no revenue to government, and others a very inconsiderable
one, might afford a very great one.

High taxes, sometimes by diminishing the consumption of the taxed commodities,
and sometimes by encouraging smuggling frequently afford a smaller revenue to
government than what might be drawn from more moderate taxes.

When the diminution of revenue is the effect of the diminution of consumption,
there can be but one remedy, and that is the lowering of the tax. When the diminution
of revenue is the effect of the encouragement given to smuggling, it may, perhaps,
be remedied in two ways; either by diminishing the temptation to smuggle, or by
increasing the difficulty of smuggling. The temptation to smuggle can be diminished
only by the lowering of the tax; and the difficulty of smuggling can be increased only
by establishing that system of administration which is most proper for preventing it.

The excise laws, it appears, I believe, from experience, obstruct and embarrass
the operations of the smuggler much more effectually than those of the customs. By
introducing into the customs a system of administration as similar to that of the excise
as the nature of the different duties will admit, the difficulty of smuggling might be
very much increased. This alteration, it has been supposed by many people, might very
easily be brought about.

The importer of commodities liable to any duties of customs, it has been said,
might, at his option, be allowed either to carry them to his own private warehouse;
or to lodge them in a warehouse, provided either at his own expense or at that of the
public, but under the key of the custom-house officer, and never to be opened but in
his presence. If the merchant carried them to his own private warehouse, the duties to
be immediately paid, and never afterwards to be drawn back; and that warehouse to be
at all times subject to the visit and examination of the custom-house officer, in order

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THE WEALTH OF NATIONS

to ascertain how far the quantity contained in it corresponded with that for which the
duty had been paid. If he carried them to the public warehouse, no duty to be paid till
they were taken out for home consumption. If taken out for exportation, to be duty-
free; proper security being always given that they should be so exported. The dealers
in those particular commodities, either by wholesale or retail, to be at all times subject
to the visit and examination of the custom-house officer; and to be obliged to justify,
by proper certificates, the payment of the duty upon the whole quantity contained in
their shops or warehouses. What are called the excise duties upon rum imported, are at
present levied in this manner; and the same system of administration might, perhaps,
be extended to all duties upon goods imported; provided always that those duties were,
like the duties of excise, confined to a few sorts of goods of the most general use and
consumption. If they were extended to almost all sorts of goods, as at present, public
warehouses of sufficient extent could not easily be provided; and goods of a very
delicate nature, or of which the preservation required much care and attention, could
not safely be trusted by the merchant in any warehouse but his own.

If, by such a system of administration, smuggling to any considerable extent
could be prevented, even under pretty high duties; and if every duty was occasionally
either heightened or lowered according as it was most likely, either the one way or the
other, to afford the greatest revenue to the state; taxation being always employed as
an instrument of revenue, and never of monopoly; it seems not improbable that a
revenue, at least equal to the present neat revenue of the customs, might be drawn from
duties upon the importation of only a few sorts of goods of the most general use and
consumption; and that the duties of customs might thus be brought to the same degree
of simplicity, certainty, and precision, as those of excise. What the revenue at present
loses by drawbacks upon the re-exportation of foreign goods, which are afterwards re-
landed and consumed at home, would, under this system, be saved altogether. If to this
saving, which would alone be very considerable, were added the abolition of all bounties
upon the exportation of home produce; in all cases in which those bounties were not in
reality drawbacks of some duties of excise which had before been advanced; it cannot
well be doubted, but that the neat revenue of customs might, after an alteration of this
kind, be fully equal to what it had ever been before.

If, by such a change of system, the public revenue suffered no loss, the trade and
manufactures of the country would certainly gain a very considerable advantage. The
trade in the commodities not taxed, by far the greatest number would be perfectly free,
and might be carried on to and from all parts of the world with every possible advantage.
Among those commodities would be comprehended all the necessaries of life, and all
the materials of manufacture. So far as the free importation of the necessaries of life
reduced their average money price in the home market, it would reduce the money price
of labour, but without reducing in any respect its real recompence. The value of money
is in proportion to the quantity of the necessaries of life which it will purchase. That of
the necessaries of life is altogether independent of the quantity of money which can be
had for them. The reduction in the money price of labour would necessarily be attended

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ADAM SMITH

with a proportionable one in that of all home manufactures, which would thereby gain
some advantage in all foreign markets. The ptice of some manufactures would be
reduced, in a still greater proportion, by the free importation of the raw materials. If
taw silk could be imported from China and Indostan, duty-free, the silk manufacturers
in England could greatly undersell those of both France and Italy. There would be no
occasion to prohibit the importation of foreign silks and velvets. The cheapness of
their goods would secure to our own workmen, not only the possession of a home, but
a very great command of the foreign market. Even the trade in the commodities taxed,
would be carried on with much more advantage than at present. If those commodities
were delivered out of the public warehouse for foreign exportation, being in this case
exempted from all taxes, the trade in them would be perfectly free. The carrying trade,
in all sorts of goods, would, under this system, enjoy every possible advantage. If
these commodities were delivered out for home consumption, the importer not being
obliged to advance the tax till he had an opportunity of selling his goods, either to
some dealer, or to some consumer, he could always afford to sell them cheaper than if
he had been obliged to advance it at the moment of importation. Under the same taxes,
the foreign trade of consumption, even in the taxed commodities, might in this manner
be carried on with much more advantage than it is at present.

It was the object of the famous excise scheme of Sir Robert Walpole, to establish,
with regard to wine and tobacco, a system not very unlike that which is here proposed.
But though the bill which was then brought into Parliament, comprehended those two
commodities only, it was generally supposed to be meant as an introduction to a more
extensive scheme of the same kind. Faction, combined with the interest of smuggling
merchants, raised so violent, though so unjust a clamour, against that bill, that the
minister thought proper to drop it; and, from a dread of exciting a clamour of the same
kind, none of his successors have dared to resume the project.

The duties upon foreign luxuries, imported for home consumption, though they
sometimes fall upon the poor, fall principally upon people of middling or more than
middling fortune. Such are, for example, the duties upon foreign wines, upon coffee,
chocolate, tea, sugar, etc.

The duties upon the cheaper luxuries of home produce, destined for home
consumption, fall pretty equally upon people of all ranks, in proportion to their
respective expense. The poor pay the duties upon malt, hops, beer, and ale, upon
their own consumption; the rich, upon both their own consumption and that of their
servants.

The whole consumption of the inferior ranks of people, or of those below the
middling rank, it must be observed, is, in every country, much greater, not only in
quantity, but in value, than that of the middling, and of those above the middling rank.
The whole expense of the inferior is much greater titan that of the superior ranks. In
the first place, almost the whole capital of every country is annually distributed among
the inferior ranks of people, as the wages of productive labour. Secondly, a great part
of the revenue, arising from both the rent of land and the profits of stock, is annually

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THE WEALTH OF NATIONS Lo

distributed among the same rank, in the wages and maintenance of menial servants,
and other unproductive labourers. Thirdly, some part of the profits of stock belongs
to the same rank, as a revenue arising from the employment of their small capitals. The
amount of the profits annually made by small shopkeepers, tradesmen, and retailers of
all kinds, is everywhere very considerable, and makes a very considerable portion of the
annual produce. Fourthly and lastly, some part even of the rent of land belongs to the
same rank; a considerable part to those who are somewhat below the middling rank,
and a small part even to the lowest rank; common labourers sometimes possessing in
property an acre or two of land. Though the expense of those inferior ranks of people,
therefore, taking them individually, is very small, yet the whole mass of it, taking them
collectively, amounts always to by much the largest portion of the whole expense of
the society; what remains of the annual produce of the land and labour of the country,
for the consumption of the superior ranks, being always much less, not only in quantity,
but in value. The taxes upon expense, therefore, which fall chiefly upon that of the
superior ranks of people, upon the smaller portion of the annual produce, are likely
to be much less productive than either those which fall indifferently upon the expense
of all ranks, or even those which fall chiefly upon that of the inferior ranks, than
either those which fall indifferently upon the whole annual produce, or those which fall
chiefly upon the larger portion of it. The excise upon the materials and manufacture
of home-made fermented and spirituous liquors, is, accordingly, of all the different
taxes upon expense, by far the most productive; and this branch of the excise falls
very much, perhaps principally, upon the expense of the common people. In the year
which ended on the 5th of July 1775, the gross produce of this branch of the excise
amounted to £3,341,837:9:9.

It must always be remembered, however, that it is the luxuries, and not the necessary
expense of the inferior ranks of people, that ought ever to be taxed. The final payment
of any tax upon their necessary expense, would fall altogether upon the superior ranks
of people; upon the smaller portion of the annual produce, and not upon the greater.
Such a tax must, in all cases, either raise the wages of labour, or lessen the demand
for it. It could not raise the wages of labour, without throwing the final payment of
the tax upon the superior ranks of people. It could not lessen the demand for labour,
without lessening the annual produce of the land and labour of the country, the fund
upon which all taxes must be finally paid. Whatever might be the state to which a tax
of this kind reduced the demand for labour, it must always raise wages higher than they
otherwise would be in that state; and the final payment of this enhancement of wages
must, in all cases, fall upon the superior ranks of people.

Fermented liquors brewed, and spiritous liquors distilled, not for sale, but for
private use, are not in Great Britain liable to any duties of excise. This exemption, of
which the object is to save private families from the odious visit and examination of
the tax-gatherer, occasions the burden of those duties to fall frequently much lighter
upon the rich than upon the poor. It is not, indeed, very common to distil for private
use, though it is done sometimes. But in the country, many middling and almost all

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ADAM SMITH

rich and great families, brew their own beer. Their strong beer, therefore, costs them
eight shillings a-barrel less than it costs the common brewer, who must have his profit
upon the tax, as well as upon all the other expense which he advances. Such families,
therefore, must drink their beer at least nine or ten shillings a-barrel cheaper than
any liquor of the same quality can be drank by the common people, to whom it is
everywhere more convenient to buy their beer, by little and little, from the brewery or
the ale-house. Malt, in the same manner, that is made for the use of a private family,
is not liable to the visit or examination of the tax-gatherer but, in this case the family
must compound at seven shillings and sixpence a-head for the tax. Seven shillings and
Sixpence are equal to the excise upon ten bushels of malt; a quantity fully equal to what
all the different members of any sober family, men, women, and children, are, at an
average, likely to consume. But in rich and great families, where country hospitality is
much practised, the malt liquors consumed by the members of the family make but a
small part of the consmnption of the house. Either on account of this composition,
however, or for other reasons, it is not near so common to malt as to brew for private
use. It is difficult to imagine any equitable reason, why those who either brew or distil
for private use should not be subject to a composition of the same kind.

A greater revenue than what is at present drawn from all the heavy taxes upon malt,
beer, and ale, might be raised, it has frequently been said, by a much lighter tax upon
malt; the opportunities of defrauding the revenue being much greater in a brewery than
in a malt-house; and those who brew for private use being exempted from all duties
ot composition for duties, which is not the case with those who malt for private use.

In the porter brewery of London, a quarter of malt is commonly brewed into
more than two barrels and a-half, sometimes into three barrels of porter. The different
taxes upon malt amount to six shillings a-quarter; those upon strong ale and beer to
eight shillings a-barrel. In the porter brewery, therefore, the different taxes upon malt,
beer, and ale, amount to between twenty-six and thirty shillings upon the produce of
a quarter of malt. In the country brewery for common country sale, a quarter of malt
is seldom brewed into less than two barrels of strong, and one barrel of small beer;
frequently into two barrels and a-half of strong beer. The different taxes upon small
beer amount to one shilling and fourpence a-barrel. In the country brewery, therefore,
the different taxes upon malt, beer, and ale, seldom amount to less than twenty-three
shillings and fourpence, frequently to twenty-six shillings, upon the produce of a
quarter of malt. Taking the whole kingdom at an average, therefore, the whole amount
of the duties upon malt, beer, and ale, cannot be estimated at less than twenty-four or
twenty-five shillings upon the produce of a quarter of malt. But by taking off all the
different duties upon beer and ale, and by trebling the malt tax, or by raising it from
six to eighteen shilling’s upon the quarter of malt, a greater revenue, it 1s said, might
be raised by this single tax, than what is at present drawn from all those heavier taxes.

In 1772, the old malt tax produced......... ia202onUl ald
The additional... £356,776: 7: 9°/s
In 1775, the old tax prodweed............... GU OZ uta /2

643

¢ THE WEALTH OF NATIONS See

The additional... £278,650: 15: 3°

In 774 stheolditaxm produced "eas. £624,614: 17: 5%
The additional....£310,745: 2: 81%
Ini 715, theoldtamproducedy ar: 2s Lf Gdisoad AOS Zs

The additional....£323,785: 12: 67/
£5,855,580: 12: 07%
Averageof, these foutyears e227 .% 95S 80 Sse O
In 1772, the country excise produced.......£1,243,120: 5: 3
The London brewery 408.2600 72) 2%

Indias) theicountrexcisers. aaa VeleD AS SOS aie a
The London brewery 405,406: 17: 10’

InviviAthetcountesexcisentna a £1,246,373: 14: 5’/
The London brewery 320,601: 18: 01%

Inelii 75, the countrpexcisenamata:.. VATA D837 36

The London brewery 463,670: 7: 0'%
4) £6,547,832: 19: 21%

Average ofithesefour years fV6369 56 4a 92

To which adding the average malt tax........ 958,895 320%

The whole amount of those different

taxes comes out to be........ LSU CSD Sule

But, by trebling the malt tax,

ot by raising it from six to

eighteen shillings upon the quarter

of malt, that single tax would produce.....£2,876,685: 9: 0

A sum which exceeds the

foregoing by... 280:332:ite 8
Under the old malt tax, indeed, is comprehended a tax of four shillings upon the
hogshead of cyder, and another of ten shillings upon the barrel of mum. In 1774,
the tax upon cyder produced only £3,083:6:8. It probably fell somewhat short of its
usual amount; all the different taxes upon cyder, having, that year, produced less than
ordinary. The tax upon mum, though much heavier, is still less productive, on account
of the smaller consumption of that liquor. But to balance whatever may be the ordinary
amount of those two taxes, there is comprehended under what is called the country
excise, first, the old excise of six shillings and eightpence upon the hogshead of cyder;
secondly, a like tax of six shillings and eightpence upon the hogshead of verjuice;
thirdly, another of eight shillings and ninepence upon the hogshead of vinegar; and,
lastly, a fourth tax of elevenpence upon the gallon of mead or metheglin. The produce
of those different taxes will probably much more than counterbalance that of the
duties imposed, by what is called the annual malt tax, upon cyder and mum.
Malt is consumed, not only in the brewery of beer and ale, but in the manufacture

of low wines and spirits. If the malt tax were to be raised to eighteen shillings upon the
quarter, it might be necessary to make some abatement in the different excises which

644

ADAM SMITH

are imposed upon those particular sorts of low wines and spirits, of which malt makes
any part of the materials. In what are called malt spirits, it makes commonly but a third
part of the materials; the other two-thirds being either raw barley, or one-third barley
and one-third wheat. In the distillery of malt spirits, both the opportunity and the
temptation to smuggle are much greater than either in a brewery or in a malt-house; the
Opportunity, on account of the smaller bulk and greater value of the commodity, and
the temptation, on account of the superior height of the duties, which amounted to 3s.
10 2/3d. upon the gallon of spirits. {Though the duties directly imposed upon proof
spirits amount only to 2s. 6d per gallon, these, added to the duties upon the low wines,
from which they are distilled, amount to 3s 10 2/3d. Both low wines and proof spirits
ate, to prevent frauds, now rated according to what they gauge in the wash.}

By increasing the duties upon malt, and reducing those upon the distillery, both
the opportunities and the temptation to smuggle would be diminished, which might
occasion a still further augmentation of revenue.

It has for some time past been the policy of Great Britain to discourage the
consumption of spiritous liquors, on account of their supposed tendency to ruin the
health and to corrupt the morals of the common people. According to this policy, the
abatement of the taxes upon the distillery ought not to be so great as to reduce, in any
respect, the price of those liquors. Spiritous liquors might remain as dear as ever; while,
at the same time, the wholesome and invigorating liquors of beer and ale might be
considerably reduced in their price. The people might thus be in part relieved from one
of the burdens of which they at present complain the most; while, at the same time,
the revenue might be considerably augmented.

The objections of Dr. Davenant to this alteration in the present system of excise
duties, seem to be without foundation. Those objections are, that the tax, instead of
dividing itself, as at present, pretty equally upon the profit of the maltster, upon that of
the brewer and upon that of the retailer, would so far as it affected profit, fall altogether
upon that of the maltster; that the maltster could not so easily get back the amount
of the tax in the advanced price of his malt, as the brewer and retailer in the advanced
price of their liquor; and that so heavy a tax upon malt might reduce the rent and profit
of barley land. ©

No tax can ever reduce, for any considerable time, the rate of profit in any particular
trade, which must always keep its level with other trades in the neighbourhood. The
present duties upon malt, beer, and ale, do not affect the profits of the dealers in those
commodities, who all get back the tax with an additional profit, in the enhanced price
of their goods. A tax, indeed, may render the goods upon which it is imposed so dear,
as to diminish the consumption of them. But the consumption of malt is in malt
liquors; and a tax of eighteen shillings upon the quarter of malt could not well render
those liquors dearer than the different taxes, amounting to twenty-four or twenty-five
shillings, do at present. Those liquors, on the contrary, would probably become cheaper,
and the consumption of them would be more likely to increase than to diminish.

It is not very easy to understand why it should be more difficult for the maltster

645

THE WEALTH OF NATIONS

to get back eighteen shillings in the advanced price of his malt, than it is at present for
the brewer to get back twenty-four or twenty-five, sometimes thirty shillings, in that
of his liquor. The maltster, indeed, instead of a tax of six shillings, would be obliged
to advance one of eighteen shilling upon every quarter of malt. But the brewer is
at present obliged to advance a tax of twenty-four or twenty-five, sometimes thirty
shillings, upon every quarter of malt which he brews. It could not be more inconvenient
for the maltster to advance a lighter tax, than it is at present for the brewer to advance a
heavier one. The maltster does not always keep in his granaries a stock of malt, which it
will require a longer time to dispose of than the stock of beer and ale which the brewer
frequently keeps in his cellars. The former, therefore, may frequently get the returns of
his money as soon as the latter. But whatever inconveniency might arise to the maltster
from being obliged to advance a heavier tax, it could easily be remedied, by granting
him a few months longer credit than is at present commonly given to the brewer.
Nothing could reduce the rent and profit of barley land, which did not reduce the
demand for barley. But a change of system, which reduced the duties upon a quarter
of malt brewed into beer and ale, from twentyfour and twenty-five shillings to eighteen
shillings, would be more likely to increase than diminish that demand. The rent and
profit of barley land, besides, must always be nearly equal to those of other equally
fertile and equally well cultivated land. If they were less, some part of the barley land
would soon be turned to some other purpose; and if they were greater, more land
would soon be turned to the raising of barley. When the ordinary price of any particular
produce of land is at what may be called a monopoly price, a tax upon it necessarily
reduces the rent and profit of the land which grows it. A tax upon the produce of those
precious vineyards, of which the wine falls so much short of the effectual demand,
that its price is always above the natural proportion to that of the produce of other
equally fertile and equally well cultivated land, would necessarily reduce the rent and
profit of those vineyards. The price of the wines being already the highest that could
be got for the quantity commonly sent to market, it could not be raised higher without
diminishing that quantity; and the quantity could not be diminished without still greater
loss, because the lands could not be turned to any other equally valuable produce. The
whole weight of the tax, therefore, would fall upon the rent and profit; properly upon
the rent of the vineyard. When it has been proposed to lay any new tax upon sugar,
our sugar planters have frequently complained that the whole weight of such taxes fell
not upon the consumer, but upon the producer; they never having been able to raise
the price of their sugar after the tax higher than it was before. The price had, it seems,
before the tax, been a monopoly price; and the arguments adduced to show that sugar
was an improper subject of taxation, demonstrated perhaps that it was a proper one;
the gains of monopolists, whenever they can be come at, being certainly of all subjects
the most proper. But the ordinary price of barley has never been a monopoly price;
and the rent and profit of barley land have never been above their natural proportion
to those of other equally fertile and equally well cultivated land. The different taxes
which have been imposed upon malt, beer, and ale, have never lowered the price of

646

ADAM SMITH

barley; have never reduced the rent and profit of barley land. The price of malt to
the brewer has constantly risen in proportion to the taxes imposed upon it; and those
taxes, together with the different duties upon beer and ale, have constantly either raised
the price, or, what comes to the same thing, reduced the quality of those commodities
to the consumer. The final payment of those taxes has fallen constantly upon the
consumer, and not upon the producer.

The only people likely to suffer by the change of system here proposed, are those
who brew for their own private use. But the exemption, which this superior rank of
people at present enjoy, from very heavy taxes which are paid by the poor labourer and
attificer, is surely most unjust and unequal, and ought to be taken away, even though
this change was never to take place. It has probably been the interest of this superior
order of people, however, which has hitherto prevented a change of system that could
not well fail both to increase the revenue and to relieve the people.

Besides such duties as those of custom and excise above mentioned, there are
several others which affect the price of goods more unequally and mote indirectly. Of
this kind are the duties, which, in French, are called peages, which in old Saxon times
were called the duties of passage, and which seem to have been originally established for
the same purpose as our turnpike tolls, or the tolls upon our canals and navigable rivers,
for the maintenance of the road or of the navigation. Those duties, when applied to
such purposes, are most properly imposed according to the bulk or weight of the goods.
As they were originally local and provincial duties, applicable to local and provincial
purposes, the administration of them was, in most cases, entrusted to the particular
town, parish, or lordship, in which they were levied; such communities being, in some
way or other, supposed to be accountable for the application. The sovereign, who is
altogether unaccountable, has in many countries assumed to himself the administration
of those duties; and though he has in most cases enhanced very much the duty, he has
in many entirely neglected the application. If the turnpike tolls of Great Britain should
ever become one of the resources of government, we may learn, by the example of
many other nations, what would probably be the consequence. Such tolls, no doubt,
are finally paid by the consumer; but the consumer is not taxed in proportion to his
expense, when he pays, not according to the value, but according to the bulk or weight
of what he consumes. When such duties ate imposed, not according to the bulk or
weight, but according to the supposed value of the goods, they become properly a
sort of inland customs or excise, which obstruct very much the most important of all
branches of commerce, the interior commerce of the country.

In some small states, duties similar to those passage duties are imposed upon goods
carried across the territory, either by land or by water, from one foreign country to
another. These are in some countries called transit-duties. Some of the little Italian
states which are situated upon the Po, and the rivers which run into it, detive some
revenue from duties of this kind, which are paid altogether by foreigners, and which,
perhaps, are the only duties that one state can impose upon the subjects of another,
without obstruction in any respect, the industry or commerce of its own. The most

647

THE WEALTH OF NATIONS

important transit-duty in the world, is that levied by the king of Denmark upon all
merchant ships which pass through the Sound.

Such taxes upon luxuries, as the greater part of the duties of customs and excise,
though they all fall indifferently upon every different species of revenue, and are paid
finally, or without any retribution, by whoever consumes the commodities upon which
they are imposed; yet they do not always fall equally or proportionally upon the revenue
of every individual. As every man’s humour regulates the degree of his consumption,
every man contributes rather according to his humour, than proportion to his revenue:
the profuse contribute more, the parsimonious less, than their proper proportion.
During the minority of a man of great fortune, he contributes commonly very little,
by his consumption, towards the support of that state from whose protection he
derives a great revenue. Those who live in another country, contribute nothing by their
consumption towards the support of the government of that country, in which is
situated the source of their revenue. If in this latter country there should be no land
tax, nor any considerable duty upon the transference either of moveable or immoveable
property, as is the case in Ireland, such absentees may derive a great revenue from the
protection of a government, to the support of which they do not contribute a single
shilling. This inequality is likely to be greatest in a country of which the government
is, in some respects, subordinate and dependant upon that of some other. The people
who possess the most extensive property in the dependant, will, in this case, generally
chuse to live in the governing country. Ireland is precisely in this situation; and we
cannot therefore wonder, that the proposal of a tax upon absentees should be so very
popular in that country. It might, perhaps, be a little difficult to ascertain either what
sort, or what degree of absence, would subject a man to be taxed as an absentee, or
at what precise time the tax should either begin or end. If you except, however, this
very peculiar situation, any inequality in the contribution of individuals which can arise
from such taxes, is much more than compensated by the very circumstance which
occasions that inequality; the circumstance that every man’s contribution is altogether
voluntary; it being altogether in his power, either to consume, or not to consume,
the commodity taxed. Where such taxes, therefore, are properly assessed, and upon
proper commodities, they are paid with less grumbling than any other. When they
are advanced by the merchant or manufacturer, the consumer, who finally pays them,
soon comes to confound them with the price of the commodities, and almost forgets
that he pays any tax. Such taxes are, or may be, perfectly certain; or may be assessed,
so as to leave no doubt concerning either what ought to be paid, or when it ought to
be paid; concerning either the quantity or the time of payment. What ever uncertainty
there may sometimes be, either in the duties of customs in Great Britain, or in other
duties of the same kind in other countries, it cannot arise from the nature of those
duties, but from the inaccurate or unskilful manner in which the law that imposes them
is expressed.

Taxes upon luxuries generally are, and always may be, paid piece-meal, or in
proportion as the contributors have occasion to purchase the goods upon which they

648

ADAM SMITH

are imposed. In the time and mode of payment, they are, or may be, of all taxes the
most convenient. Upon the whole, such taxes, therefore, are perhaps as agreeable to the
three first of the four general maxims concerning taxation, as any other. They offend
in every respect against the fourth.

Such taxes, in proportion to what they bring into the public treasury of the state,
always take out, or keep out, of the pockets of the people, more than almost any other
taxes. They seem to do this in all the four different ways in which it is possible to do it.

First, the levying of such taxes, even when imposed in the most judicious manner,
requires a great number of custom-house and excise officers, whose salaries and
perquisites are a real tax upon the people, which brings nothing into the treasury of
the state. This expense, however, it must be acknowledged, is more moderate in Great
Britain than in most other countries. In the year which ended on the 5th of July, 1775,
the gross produce of the different duties, under the management of the commissioners
of excise in England, amounted to £5,507,308:18:8/%, which was levied at an expense
of little more than five and a-half per cent. From this gross produce, however, there
must be deducted what was paid away in bounties and drawbacks upon the exportation
of exciseable goods, which will reduce the neat produce below five millions. {The
neat produce of that year, after deducting all expenses and allowances, amounted to
£4,975,652:19:6.} The levying of the salt duty, and excise duty, but under a different
management, is much more expensive. The neat revenue of the customs does not
amount to two millions and a-half, which is levied at an expense of more than ten per
cent., in the salaries of officers and other incidents. But the perquisites of custom-
house officers are everywhere much greater than their salaries; at some ports more
than double or triple those salaries. If the salaries of officers, and other incidents,
therefore, amount to more than ten per cent. upon the neat revenue of the customs,
the whole expense of levying that revenue may amount, in salaries and perquisites
together, to more than twenty or thirty per cent. The officers of excise receive few or
no perquisites; and the administration of that branch of the revenue being of more
recent establishment, is in general less corrupted than that of the customs, into which
length of time has introduced and authorised many abuses. By charging upon malt the
whole revenue which is at present levied by the different duties upon malt and malt
liquors, a saving, it is supposed, of more than £50,000, might be made in the annual
expense of the excise. By confining the duties of customs to a few sorts of goods,
and by levying those duties according to the excise laws, a much greater saving might
probably be made in the annual expense of the customs.

Secondly, such taxes necessarily occasion some obstruction or discouragement to
certain branches of industry. As they always raise the price of the commodity taxed,
they so far discourage its consumption, and consequently its production. If it is a
commodity of home growth or manufacture, less labour comes to be employed in
raising and producing it. If it is a foreign commodity of which the tax increases in this
manner the price, the commodities of the same kind which are made at home may
thereby, indeed, gain some advantage in the home market, and a greater quantity of

649

THE WEALTH OF NATIONS

domestic industry may thereby be turned toward preparing them. But though this rise
of price in a foreign commodity, may encourage domestic industry in one particular
branch, it necessarily discourages that industry in almost every other. The dearer the
Birmingham manufacturer buys his foreign wine, the cheaper he necessarily sells that
part of his hardware with which, or, what comes to the same thing, with the price of
which, he buys it. That part of his hardware, therefore, becomes of less value to him,
and he has less encouragement to work at it. The dearer the consumers in one country
pay for the surplus produce of another, the cheaper they necessarily sell that part of
their own surplus produce with which, or, what comes to the same thing, with the
price of which, they buy it. That part of their own surplus produce becomes of less
value to them, and they have less encouragement to increase its quantity. All taxes upon
consumable commodities, therefore, tend to reduce the quantity of productive labour
below what it otherwise would be, either in preparing the commodities taxed, if they
are home commodities, or in preparing those with which they are purchased, if they are
foreign commodities. Such taxes, too, always alter, more or less, the natural direction
of national industry, and turn it into a channel always different from, and generally less
advantageous, than that in which it would have run of its own accord.

Thirdly, the hope of evading such taxes by smuggling, gives frequent occasion
to forfeitures and other penalties, which entirely ruin the smuggler; a person who,
though no doubt highly blameable for violating the laws of his country, is frequently
incapable of violating those of natural justice, and would have been, in every respect,
an excellent citizen, had not the laws of his country made that a crime which nature
never meant to be so. In those corrupted governments, where there is at least a general
suspicion of much unnecessary expense, and great misapplication of the public
revenue, the laws which guard it are little respected. Not many people are scrupulous
about smuggling, when, without perjury, they can find an easy and safe opportunity
of doing so. To pretend to have any scruple about buying smuggled goods, though
a manifest encouragement to the violation of the revenue laws, and to the perjury
which almost always attends it, would, in most countries, be regarded as one of those
pedantic pieces of hypocrisy which, instead of gaining credit with anybody, serve only
to expose the person who affects to practise them to the suspicion of being a greater
knave than most of his neighbours. By this indulgence of the public, the smuggler is
often encouraged to continue a trade, which he is thus taught to consider as in some
measure innocent; and when the severity of the revenue laws is ready to fall upon him,
he is frequently disposed to defend with violence, what he has been accustomed to
regard as his just property. From being at first, perhaps, rather imprudent than criminal,
he at last too often becomes one of the hardiest and most determined violators of
the laws of society. By the ruin of the smuggler, his capital, which had before been
employed in maintaining productive labour, is absorbed either in the revenue of the
state, or in that of the revenue officer; and is employed in maintaining unproductive, to
the diminution of the general capital of the society, and of the useful industry which it
might otherwise have maintained.

650

ADAM SMITH

Fourthly, such taxes, by subjecting at least the dealers in the taxed commodities,
to the frequent visits and odious examination of the tax-gatherers, expose them
sometimes, no doubt, to some degree of oppression, and always to much trouble and
vexation; and though vexation, as has already been said, is not strictly speaking expense,
it is certainly equivalent to the expense at which every man would be willing to redeem
himself from it. The laws of excise, though mote effectual for the purpose for which
they were instituted, are, in this respect, more vexatious than those of the customs.
When a merchant has imported goods subject to certain duties of customs; when
he has paid those duties, and lodged the goods in his warehouse; he is not, in most
cases, liable to any further trouble or vexation from the custom-house officer. It is
otherwise with goods subject to duties of excise. The dealers have no respite from the
continual visits and examination of the excise officers. The duties of excise are, upon
this account, more unpopular than those of the customs; and so are the officers who
levy them. Those officers, it is pretended, though in general, perhaps, they do their duty
fully as well as those of the customs; yet, as that duty obliges them to be frequently
very troublesome to some of their neighbours, commonly contract a certain hardness
of character, which the others frequently have not. This observation, however, may
very probably be the mere suggestion of fraudulent dealers, whose smuggling is either
prevented or detected by their diligence.

The inconveniencies, however, which are, perhaps, in some degree inseparable from
taxes upon consumable communities, fall as ight upon the people of Great Britain as
upon those of any other country of which the government ts nearly as expensive. Our
state is not perfect, and might be mended; but it is as good, or better, than that of most
of our neighbours.

In consequence of the notion, that duties upon consumable goods were taxes
upon the profits of merchants, those duties have, in some countries, been repeated
upon every successive sale of the goods. If the profits of the merchant-importer or
merchant-manufacturer were taxed, equality seemed to require that those of all the
middle buyers, who intervened between either of them and the consumer, should
likewise be taxed. The famous alcavala of Spain seems to have been established upon
this principle. It was at first a tax of ten per cent. afterwards of fourteen per cent.
and it is at present only six per cent. upon the sale of every sort of property whether
moveable or immoveable; and it is repeated every time the property 1s sold. {Memoires
concernant les Droits, etc. tom. i, p. 15} The levying of this tax requires a multitude
of revenue officers, sufficient to guard the transportation of goods, not only from one
province to another, but from one shop to another. It subjects, not only the dealers
in some sorts of goods, but those in all sorts, every farmer, every manufacturer, every
merchant and shopkeeper, to the continual visit and examination of the tax-gatherers.
Through the greater part of the country in which a tax of this kind is established,
nothing can be produced for distant sale. The produce of every part of the country
must be proportioned to the consumption of the neighbourhood. It is to the alcavala,
accordingly, that Ustaritz imputes the ruin of the manufactures of Spain. He might

651

THE WEALTH OF NATIONS —

have imputed to it, likewise, the declension of agriculture, it being imposed not only
upon manufactures, but upon the rude produce of the land.

In the kingdom of Naples, there is a similar tax of three per cent. upon the value
of all contracts, and consequently upon that of all contracts of sale. It is both lighter
than the Spanish tax, and the greater part of towns and parishes are allowed to pay
a composition in lieu of it. They levy this composition in what manner they please,
generally in a way that gives no interruption to the interior commerce of the place. The
Neapolitan tax, therefore, is not near so ruinous as the Spanish one.

The uniform system of taxation, which, with a few exception of no great
consequence, takes place in all the different parts of the united kingdom of Great
Britain, leaves the interior commerce of the country, the inland and coasting trade,
almost entirely free. The inland trade is almost perfectly free; and the greater part of
goods may be carried from one end of the kingdom to the other, without requiring any
permit or let-pass, without being subject to question, visit or examination, from the
revenue officers. There ate a few exceptions, but they are such as can give no interruption
to any important branch of inland commerce of the country. Goods carried coastwise,
indeed, require certificates or coast-cockets. If you except coals, however, the rest are
almost all duty-free. This freedom of interior commerce, the effect of the uniformity
of the system of taxation, is perhaps one of the principal causes of the prosperity of
Great Britain; every great country being necessarily the best and most extensive market
for the greater part of the productions of its own industry. If the same freedom in
consequence of the same uniformity, could be extended to Ireland and the plantations,
both the grandeur of the state, and the prosperity of every part of the empire, would
probably be still greater than at present.

In France, the different revenue laws which take place in the different provinces,
require a multitude of revenue officers to surround, not only the frontiers of the
kingdom, but those of almost each particular province, in order either to prevent the
importation of certain goods, or to subject it to the payment of certain duties, to
the no small interruption of the interior commerce of the country. Some provinces
ate allowed to compound for the gabelle, or salt tax; others are exempted from it
altogether. Some provinces are exempted from the exclusive sale of tobacco, which
the farmers-general enjoy through the greater part of the kingdom. The aides, which
correspond to the excise in England, are very different in different provinces. Some
provinces are exempted from them, and pay a composition or equivalent. In those in
which they take place, and are in farm, there are many local duties which do not extend
beyond a particular town or district. The traites, which correspond to our customs,
divide the kingdom into three great parts; first, the provinces subject to the tariff of
1664, which are called the provinces of the five great farms, and under which are
comprehended Picardy, Normandy, and the greater part of the interior provinces of
the kingdom; secondly, the provinces subject to the tariff of 1667, which are called the
provinces reckoned foreign, and under which are comprehended the greater part of the
frontier provinces; and, thirdly, those provinces which are said to be treated as foreign,

652

ADAM SMITH

ot which, because they are allowed a free commerce with foreign countries, are, in their
commetce with the other provinces of France, subjected to the same duties as other
foreign countries. These are Alsace, the three bishoprics of Mentz, Toul, and Verdun,
and the three cities of Dunkirk, Bayonne, and Marseilles. Both in the provinces of the
five great farms (called so on account of an ancient division of the duties of customs
into five great branches, each of which was originally the subject of a particular farm,
though they are now all united into one), and in those which are said to be reckoned
foreign, there are many local duties which do not extend beyond a particular town
or district. There are some such even in the provinces which are said to be treated as
foreign, particularly in the city of Marseilles. It is unnecessary to observe how much
both the restraints upon the interior commerce of the country, and the number of the
revenue officers, must be multiplied, in order to guard the frontiers of those different
provinces and districts which are subject to such different systems of taxation.

Over and above the general restraints arising from this complicated system of
revenue laws, the commerce of wine (after corn, perhaps, the most important
production of France) is, in the greater part of the provinces, subject to particular
restraints arising from the favour which has been shown to the vineyards of particular
provinces and districts above those of others. The provinces most famous for their
wines, it will be found, I believe, are those in which the trade in that article is subject
to the fewest restraints of this kind. The extensive market which such provinces enjoy,
encourages good management both in the cultivation of their vineyards, and in the
subsequent preparation of their wines.

Such various and complicated revenue laws are not peculiar to France. The little
duchy of Milan is divided into six provinces, in each of which there is a different
system of taxation, with regard to several different sorts of consumable goods. The
still smaller territories of the duke of Parma are divided into three or four, each of
which has, in the same manner, a system of its own. Under such absurd management,
nothing but the great fertility of the soil, and happiness of the climate, could preserve
such countries from soon relapsing into the lowest state of poverty and barbarism.

Taxes upon consumable commodities may either he levied by an administration, of
which the officers are appointed by govermnent, and are immediately accountable to
government, of which the revenue must, in this case, vary from year to year, according
to the occasional variations in the produce of the tax; or they may be let in farm for a
rent certain, the farmer being allowed to appoint his own officers, who, though obliged
to levy the tax in the manner directed by the law, are under his immediate inspection,
and are immediately accountable to him. The best and most frugal way of levying a
tax can never be by farm. Over and above what is necessary for paying the stipulated
rent, the salaries of the officers, and the whole expense of administration, the farmer
must always draw from the produce of the tax a certain profit, proportioned at least
to the advance which he makes, to the risk which he runs, to the trouble which he is
at, and to the knowledge and skill which it requires to manage so very complicated a
concern. Government, by establishing an administration under their own immediate

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THE WEALTH OF NATIONS

inspection, of the same kind with that which the farmer establishes, might at least
save this profit, which is almost always exorbitant. To farm any considerable branch
of the public revenue requires either a great capital, or a great credit; circumstances
which would alone restrain the competition for such an undertaking to a very small
number of people. Of the few who have this capital or credit, a still smaller number
have the necessary knowledge or experience; another circumstance which restrains the
competition still further. The very few who are in condition to become competitors,
find it more for their interest to combine together; to become copartners, instead of
competitors; and, when the farm is set up to auction, to offer no rent but what 1s
much below the real value. In countries where the public revenues are in farm, the
farmers ate generally the most opulent people. Their wealth would alone excite the
public indignation; and the vanity which almost always accompanies such upstart
fortunes, the foolish ostentation with which they commonly display that wealth, excite
that indignation still more.

The farmers of the public revenue never find the laws too severe, which punish
any attempt to evade the payment of a tax. They have no bowels for the contributors,
who are not their subjects, and whose universal bankruptcy, if it should happen the day
after the farm is expired, would not much affect their interest. In the greatest exigencies
of the state, when the anxiety of the sovereign for the exact payment of his revenue is
necessarily the greatest, they seldom fail to complain, that without laws more rigorous
than those which actually took place, it will be impossible for them to pay even the usual
rent. In those moments of public distress, their commands cannot be disputed. The
revenue laws, therefore, become gradually more and more severe. The most sanguinary
are always to be found in countries where the greater part of the public revenue is in
farm; the mildest, in countries where it is levied under the immediate inspection of the
sovereign. Even a bad sovereign feels more compassion for his people than can ever be
expected from the farmers of his revenue. He knows that the permanent grandeur of
his family depends upon the prosperity of his people, and he will never knowingly ruin
that prosperity for the sake of any momentary interest of his own. It is otherwise with
the farmers of his revenue, whose grandeur may frequently be the effect of the ruin,
and not of the prosperity, of his people.

A tax is sometimes not only farmed for a certain rent, but the farmer has, besides,
the monopoly of the commodity taxed. In France, the duties upon tobacco and salt are
levied in this manner. In such cases, the farmer, instead of one, levies two exorbitant
profits upon the people; the profit of the farmer, and the still more exorbitant one of
the monopolist. Tobacco being a luxury, every man is allowed to buy or not to buy as
he chuses; but salt being a necessary, every man is obliged to buy of the farmer a certain
quantity of it; because, if he did not buy this quantity of the farmer, he would, it is
presumed, buy it of some smuggler. The taxes upon both commodities are exorbitant.
The temptation to smuggle, consequently, is to many people irresistible; while, at the
same time, the rigour of the law, and the vigilance of the farmet’s officers, render the
yielding to the temptation almost certainly ruinous. The smuggling of salt and tobacco

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ADAM SMITH

sends every year several hundred people to the galleys, besides a very considerable
number whom it sends to the gibbet. Those taxes, levied in this manner, yield a very
considerable revenue to government. In 1767, the farm of tobacco was let for twenty-
two millions five hundred and forty-one thousand two hundred and seventy-eight livres
a-year; that of salt for thirty-six millions four hundred and ninety-two thousand four
hundred and four livres. The farm, in both cases, was to commence in 1768, and to last
for six years. Those who consider the blood of the people as nothing, in comparison
with the revenue of the prince, may, perhaps, approve of this method of levying taxes.
Similar taxes and monopolies of salt and tobacco have been established in many other
countries, particularly in the Austrian and Prussian dominions, and in the greater part
of the states of Italy.

In France, the greater part of the actual revenue of the crown is derived from
eight different sources; the taille, the capitation, the two vingtiemes, the gabelles,
the aides, the traites, the domaine, and the farm of tobacco. The live last are, in the
greater part of the provinces, under farm. The three first are everywhere levied by an
administration, under the immediate inspection and direction of government; and it is
universally acknowledged, that in proportion to what they take out of the pockets of
the people, they bring more into the treasury of the prince than the other five, of which
the administration is much more wasteful and expensive.

The finances of France seem, in their present state, to admit of three very obvious
reformations. First, by abolishing the taille and the capitation, and by increasing the
number of the vingtiemes, so as to produce an additional revenue equal to the amount
of those other taxes, the revenue of the crown might be preserved; the expense of
collection might be much diminished; the vexation of the inferior ranks of people,
which the taille and capitation occasion, might be entirely prevented; and the superior
ranks might not be more burdened than the greater part of them are at present. The
vingtieme, I have already observed, is a tax very nearly of the same kind with what is
called the land tax of England. The burden of the taille, it is acknowledged, falls finally
upon the proprietors of land; and as the greater part of the capitation is assessed upon
those who are subject to the taille, at so much a-pound of that other tax, the final
payment of the greater part of it must likewise fall upon the same order of people.
Though the number of the vingtiemes, therefore, was increased, so as to produce an
additional revenue equal to the amount of both those taxes, the superior ranks of
people might not be more burdened than they are at present; many individuals, no
doubt, would, on account of the great inequalities with which the taille is commonly
assessed upon the estates and tenants of different individuals. The interest and
opposition of such favoured subjects, are the obstacles most likely to prevent this,
or any other reformation of the same kind. Secondly, by rendering the gabelle, the
aides, the traites, the taxes upon tobacco, all the different customs and excises, uniform
in all the different parts of the kingdom, those taxes might be levied at much less
expense, and the interior commerce of the kingdom might be rendered as free as that
of England. Thirdly, and lastly, by subjecting all those taxes to an administration under

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THE WEALTH OF NATIONS

the immediate inspection and direction or government, the exorbitant profits of the
farmers-general might be added to the revenue of the state. The opposition arising
from the private interest of individuals, is likely to be as effectual for preventing the two
last as the first-mentioned scheme of reformation.

The French system of taxation seems, in every respect, inferior to the British. In
Great Britain, ten millions sterling are annually levied upon less than eight millions
of people, without its being possible to say that any particular order is oppressed.
From the Collections of the Abbé Expilly, and the observations of the author of the
Essay upon the Legislation and Commerce of Corn, it appears probable that France,
including the provinces of Lorraine and Bar, contains about twenty-three or twenty-
four millions of people; three times the number, perhaps, contained in Great Britain.
The soil and climate of France are better than those of Great Britain. The country
has been much longer in a state of improvement and cultivation, and is, upon that
account, better stocked with all those things which it requires a long time to raise up and
accumulate; such as great towns, and convenient and well-built houses, both in town
and country. With these advantages, it might be expected, that in France a revenue of
thirty millions might be levied for the support of the state, with as little inconvenience
as a revenue of ten millions is in Great Britain. In 1765 and 1766, the whole revenue
paid into the treasury of France, according to the best, though, I acknowledge, very
imperfect accounts which I could get of it, usually run between 308 and 325 millions
of livres; that is, it did not amount to fifteen millions sterling; not the half of what
might have been expected, had the people contributed in the same proportion to their
numbers as the people of Great Britain. The people of France, however, it is generally
acknowledged, are much more oppressed by taxes than the people of Great Britain.
France, however, is certainly the great empire in Europe, which, after that of Great
Britain, enjoys the mildest and most indulgent government.

In Holland, the heavy taxes upon the necessaries of life have ruined, it is said, their
principal manufacturers, and are likely to discourage, gradually, even their fisheries and
their trade in ship-building. The taxes upon the necessaries of life are inconsiderable in
Great Britain, and no manufacture has hitherto been ruined by them. The British taxes
which bear hardest on manufactures, are some duties upon the importation of raw
materials, particularly upon that of raw silk. The revenue of the States-General and of
the different cities, however, is said to amount to more than five millions two hundred
and fifty thousand pounds sterling; and as the inhabitants of the United Provinces
cannot well be supposed to amount to more than a third part of those of Great Britain,
they must, in proportion to their number, be much more heavily taxed.

After all the proper subjects of taxation have been exhausted, if the exigencies
of the state still continue to require new taxes, they must be imposed upon improper
ones. The taxes upon the necessaries of life, therefore, may be no impeachment of the
wisdom of that republic, which, in order to acquire and to maintain its independency,
has, in spite of its meat frugality, been involved in such expensive wars as have obliged
it to contract great debts. The singular countries of Holland and Zealand, besides,

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require a considerable expense even to preserve their existence, or to prevent their
being swallowed up by the sea, which must have contributed to increase considerably
the load of taxes in those two provinces. The republican form of government seems
to be the principal support of the present grandeur of Holland. The owners of great
capitals, the great mercantile families, have generally either some direct share, or some
indirect influence, in the administration of that government. For the sake of the
respect and authority which they derive from this situation, they ate willing to live in
a country where their capital, if they employ it themselves, will bring them less profit,
and if they lend it to another, less interest; and where the very moderate revenue which
they can draw from it will purchase less of the necessaries and conveniencies of life
than in any other part of Europe. The residence of such wealthy people necessarily
keeps alive, in spite of all disadvantages, a certain degree of industry in the country.
Any public calamity which should destroy the republican form of government, which
should throw the whole administration into the hands of nobles and of soldiers, which
should annihilate altogether the importance of those wealthy merchants, would soon
render it disagreeable to them to live in a country where they were no longer likely to
be much respected. They would remove both their residence and their capital to some
other country, and the industry and commerce of Holland would soon follow the
capitals which supported them.

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THE WEALTH OF NATIONS

CHAPTER III.
OF PUBLIC DEBTS.

n that rude state of society which precedes the extension of commerce and the
| ke eaters of manufactures; when those expensive luxuries, which commerce
and manufactures can alone introduce, are altogether unknown; the person who
possesses a large revenue, I have endeavoured to show in the third book of this Inquiry,
can spend or enjoy that revenue in no other way than by maintaining nearly as many
people as it can maintain. A large revenue may at all times be said to consist in the
command of a large quantity of the necessaries of life. In that rude state of things,
it is commonly paid in a large quantity of those necessaries, in the materials of plain
food and coarse clothing, in corn and cattle, in wool and raw hides. When neither
commerce nor manufactures furnish any thing for which the owner can exchange the
greater part of those materials which are over and above his own consumption, he can
do nothing with the surplus, but feed and clothe nearly as many people as it will feed
and clothe. A hospitality in which there is no luxury, and a liberality in which there is
no ostentation, occasion, in this situation of things, the principal expenses of the rich
and the great. But these I have likewise endeavoured to show, in the same book, are
expenses by which people are not very apt to ruin themselves. There is not, perhaps,
any selfish pleasure so frivolous, of which the pursuit has not sometimes ruined even
sensible men. A passion for cock-fighting has ruined many. But the instances, I believe,
are not very numerous, of people who have been ruined by a hospitality or liberality
of this kind; though the hospitality of luxury, and the liberality of ostentation have
ruined many. Among our feudal ancestors, the long time during which estates used
to continue in the same family, sufficiently demonstrates the general disposition of
people to live within their income. Though the rustic hospitality, constantly exercised
by the great landholders, may not, to us in the present times, seem consistent with that
order which we are apt to consider as inseparably connected with good economy; yet
we must certainly allow them to have been at least so far frugal, as not commonly to
have spent their whole income. A part of their wool and raw hides, they had generally
an opportunity of selling for money. Some part of this money, perhaps, they spent in
purchasing the few objects of vanity and luxury, with which the circumstances of the
times could furnish them; but some part of it they seem commonly to have hoarded.
They could not well, indeed, do any thing else but hoard whatever money they saved.
To trade, was disgraceful to a gentleman; and to lend money at interest, which at that
time was considered as usury, and prohibited bylaw, would have been still more so. In
those times of violence and disorder, besides, it was convenient to have a hoatd of

658

ADAM SMITH

money at hand, that in case they should be driven from their own home, they might
have something of known value to carry with them to some place of safety. The same
violence which made it convenient to hoard, made it equally convenient to conceal the
hoard. The frequency of treasure-trove, or of treasure found, of which no owner was
known, sufficiently demonstrates the frequency, in those times, both of hoarding and
of concealing the hoard. Treasure-trove was then considered as an important branch
of the revenue of the sovereign. All the treasure-trove of the kingdom would scatce,
perhaps, in the present times, make an important branch of the revenue of a private
gentleman of a good estate.

The same disposition, to save and to hoard, prevailed in the sovereign, as well as
in the subjects. Among nations, to whom commerce and manufacture are little known,
the sovereign, it has already been observed in the Fourth book, is in a situation which
naturally disposes him to the parsimony requisite for accumulation. In that situation,
the expense, even of a sovereign, cannot be directed by that vanity which delights
in the gaudy finery of a court. The ignorance of the times affords but few of the
trinkets in which that finery consists. Standing armies are not then necessary; so that
the expense, even of a sovereign, like that of any other great lord can be employed in
scarce any thing but bounty to his tenants, and hospitality to his retainers. But bounty
and hospitality very seldom lead to extravagance; though vanity almost always does.
All the ancient sovereigns of Europe, accordingly, it has already been observed, had
treasures. Every Tartar chief, in the present times, is said to have one.

In a commercial country, abounding with every sort of expensive luxury, the
sovereign, in the same manner as almost all the great proprietors in his dominions,
naturally spends a great part of his revenue in purchasing those luxuries. His own
and the neighbouring countries supply him abundantly with all the costly trinkets
which compose the splendid, but insignificant, pageantry of a court. For the sake of
an inferior pageantry of the same kind, his nobles dismiss their retainers, make their
tenants independent, and become gradually themselves as insignificant as the greater
part of the wealthy burghers in his dominions. The same frivolous passions, which
influence their conduct, influence his. How can it be supposed that he should be the only
tich man in his dominions who is insensible to pleasures of this kind? If he does not,
what he is very likely to do, spend upon those pleasures so great a part of his revenue
as to debilitate very much the defensive power of the state, it cannot well be expected
that he should not spend upon them all that part of it which is over and above what
is necessary for supporting that defensive power. His ordinary expense becomes equal
to his ordinary revenue, and it is well if it does not frequently exceed it. The amassing
of treasure can no longer be expected; and when extraordinary exigencies require
extraordinary expenses, he must necessarily call upon his subjects for an extraordinary
aid. The present and the late king of Prussia are the only great princes of Europe, who,
since the death of Henry IV. of France, in 1610, are supposed to have amassed any
considerable treasure. The parsimony which leads to accumulation has become almost
as rare in republican as in monatchical governments. The Italian republics, the United

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THE WEALTH OF NATIONS

Provinces of the Netherlands, are all in debt. The canton of Berne is the single republic
in Europe which has amassed any considerable treasure. The other Swiss republics
have not. The taste for some sort of pageantry, for splendid buildings, at least, and
other public ornaments, frequently prevails as much in the apparently sober senate-
house of a little republic, as in the dissipated court of the greatest king.

The want of parsimony, in time of peace, imposes the necessity of contracting
debt in time of war. When war comes, there is no money in the treasury, but what
is necessary for carrying on the ordinary expense of the peace establishment. In
wart, an establishment of three or four times that expense becomes necessary for the
defence of the state; and consequently, a revenue three or four times greater than the
peace revenue. Supposing that the sovereign should have, what he scarce ever has, the
immediate means of augmenting his revenue in proportion to the augmentation of his
expense; yet still the produce of the taxes, from which this increase of revenue must
be drawn, will not begin to come into the treasury, till perhaps ten or twelve months
after they are imposed. But the moment in which war begins, or rather the moment in
which it appears likely to begin, the army must be augmented, the fleet must be fitted
out, the garrisoned towns must be put into a posture of defence; that army, that fleet,
those garrisoned towns, must be furnished with arms, ammunition, and provisions. An
immediate and great expense must be incurred in that moment of immediate danger,
which will not wait for the gradual and slow returns of the new taxes. In this exigency,
government can have no other resource but in borrowing.

The same commercial state of society which, by the operation of moral causes,
brings government in this manner into the necessity of borrowing, produces in the
subjects both an ability and an inclination to lend. If it commonly brings along with it
the necessity of borrowing, it likewise brings with it the facility of doing so.

A country abounding with merchants and manufacturers, necessarily abounds with
a set of people through whose hands, not only their own capitals, but the capitals of
all those who either lend them money, or trust them with goods, pass as frequently, or
more frequently, than the revenue of a private man, who, without trade or business,
lives upon his income, passes through his hands. The revenue of such a man can
regularly pass through his hands only once in a year. But the whole amount of the
capital and credit of a merchant, who deals in a trade of which the returns are very
quick, may sometimes pass through his hands two, three, or four times in a year. A
country abounding with merchants and manufacturers, therefore, necessarily abounds
with a set of people, who have it at all times in their power to advance, if they chuse to
do so, a very large sum of money to government. Hence the ability in the subjects of
a commercial state to lend.

Commerce and manufactures can seldom flourish long in any state which does not
enjoy a regular administration of justice; in which the people do not feel themselves
secure in the possession of their property; in which the faith of contracts is not supported
by law; and in which the authority of the state is not supposed to be regularly employed
in enforcing the payment of debts from all those who are able to pay. Commerce

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ADAM SMITH

and manufactures, in short, can seldom flourish in any state, in which there is not
a certain degree of confidence in the justice of government. The same confidence
which disposes great merchants and manufacturers upon ordinary occasions, to trust
their property to the protection of a particular government, disposes them, upon
extraordinary occasions, to trust that government with the use of their property. By
lending money to government, they do not even for a moment diminish their ability
to carry on their trade and manufactures; on the contrary, they commonly augment it.
The necessities of the state render government, upon most occasions willing to borrow
upon terms extremely advantageous to the lender. The security which it grants to the
original creditor, is made transferable to any other creditor; and from the universal
confidence in the justice of the state, generally sells in the market for more than was
originally paid for it. The merchant or monied man makes money by lending money
to government, and instead of diminishing, increases his trading capital. He generally
considers it as a favour, therefore, when the administration admits him to a share in the
first subscription for a new loan. Hence the inclination or willingness in the subjects of
a commercial state to lend.

The government of such a state is very apt to repose itself upon this ability and
willingness of its subjects to lend it their money on extraordinary occasions. It foresees
the facility of borrowing, and therefore dispenses itself from the duty of saving,

In a rude state of society, there are no great mercantile or manufacturing capitals.
The individuals, who hoard whatever money they can save, and who conceal their
hoard, do so from a distrust of the justice of government; from a fear, that if it was
known that they had a hoard, and where that hoard was to be found, they would
quickly be plundered. In such a state of things, few people would be able, and nobody
would be willing to lend their money to government on extraordinary exigencies. The
sovereign feels that he must provide for such exigencies by saving, because he foresees
the absolute impossibility of borrowing. This foresight increases still further his natural
disposition to save.

The progress of the enormous debts which at present oppress, and will in the long-
run probably ruin, all the great nations of Europe, has been pretty uniform. Nations,
like private men, have generally begun to borrow upon what may be called personal
credit, without assigning or mortgaging any particular fund for the payment of the
debt; and when this resource has failed them, they have gone on to borrow upon
assignments or mortgages of particular funds.

What is called the unfunded debt of Great Britain, is contracted in the former
of those two ways. It consists partly in a debt which bears, or is supposed to bear, no
interest, and which resembles the debts that a private man contracts upon account; and
partly in a debt which bears interest, and which resembles what a private man contracts
upon his bill or promissory-note. The debts which are due, either for extraordinary
services, or for services either not provided for, or not paid at the time when they are
performed; part of the extraordinaries of the army, navy, and ordnance, the arrears
of subsidies to foreign princes, those of seamen’s wages, etc. usually constitute a debt

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THE WEALTH OF NATIONS

of the first kind. Navy and exchequer bills, which are issued sometimes in payment
of a part of such debts, and sometimes for other purposes, constitute a debt of the
second kind; exchequer bills bearing interest from the day on which they are issued, and
navy bills six months after they are issued. The bank of England, either by voluntarily
discounting those bills at their current value, or by agreeing with government for
certain considerations to circulate exchequer bills, that is, to receive them at par, paying
the interest which happens to be due upon them, keeps up their value, and facilitates
their circulation, and thereby frequently enables government to contract a very large
debt of this kind. In France, where there is no bank, the state bills (billets d’etat {See
Examen des Reflections Politiques sur les Finances.}) have sometimes sold at sixty and
seventy per cent. discount. During the great recoinage in king William’s time, when
the bank of England thought proper to put a stop to its usual transactions, exchequer
bills and tallies are said to have sold from twenty-five to sixty per cent. discount; owing
partly, no doubt, to the supposed instability of the new government established by the
Revolution, but partly, too, to the want of the support of the bank of England.

When this resource is exhausted, and it becomes necessary, in order to raise money,
to assign or mortgage some particular branch of the public revenue for the payment
of the debt, government has, upon different occasions, done this in two different ways.
Sometimes it has made this assignment or mortgage for a short period of time only,
a year, or a few years, for example; and sometimes for perpetuity. In the one case, the
fund was supposed sufficient to pay, within the limited time, both principal and interest
of the money borrowed. In the other, it was supposed sufficient to pay the interest
only, or a perpetual annuity equivalent to the interest, government being at liberty to
redeem, at any time, this annuity, upon paying back the principal sum borrowed. When
money was raised in the one way, it was said to be raised by anticipation; when in the
other, by perpetual funding, or, more shortly, by funding.

In Great Britain, the annual land and malt taxes are regularly anticipated every year,
by virtue of a borrowing clause constantly inserted into the acts which impose them.
The bank of England generally advances at an interest, which, since the Revolution,
has varied from eight to three per cent., the sums of which those taxes are granted,
and receives payment as their produce gradually comes in. If there is a deficiency,
which there always is, it is provided for in the supplies of the ensuing year. The only
considerable branch of the public revenue which yet remains unmortgaged, is thus
regularly spent before it comes in. Like an improvident spendthrift, whose pressing
occasions will not allow him to wait for the regular payment of his revenue, the state
is in the constant practice of borrowing of its own factors and agents, and of paying
interest for the use of its own money.

In the reign of king William, and during a great part of that of queen Anne, before we
had become so familiar as we are now with the practice of perpetual funding, the greater
part of the new taxes were imposed but for a short period of time (for four, five, six, or
seven years only), and a great part of the grants of every year consisted in loans upon
anticipations of the produce of those taxes. The produce being frequently insufficient

662

ADAM SMITH

for paying, within the limited term, the principal and interest of the money borrowed,
deficiencies arose; to make good which, it became necessary to prolong the term.

In 1697, by the 8th of William III., c. 20, the deficiencies of several taxes were
charged upon what was then called the first general mortgage or fund, consisting of
a prolongation to the first of August 1706, of several different taxes, which would
have expired within a shorter term, and of which the produce was accumulated into
one general fund. The deficiencies charged upon this prolonged term amounted to
£5,160,459: 14: 91%.

In 1701, those duties, with some others, were still further prolonged, for the like
purposes, till the first of August 1710, and were called the second general mortgage or
fund. The deficiencies charged upon it amounted to £2,055,999: 7: 11%.

In 1707, those duties were still further prolonged, as a fund for new loans, to the
first of August 1712, and were called the third general mortgage or fund. The sum
borrowed upon it was £983,254:11:9'/.

In 1708, those duties were all (except the old subsidy of tonnage and poundage, of
which one moiety only was made a part of this fund, and a duty upon the importation of
Scotch linen, which had been taken off by the articles of union) still further continued,
as a fund for new loans, to the first of August 1714, and were called the fourth general
mortgage or fund. The sum borrowed upon it was £925,176:9:2/%.

In 1709, those duties were all ( except the old subsidy of tonnage and poundage,
which was now left out of this fund altogether ) still further continued, for the same
purpose, to the first of August 1716, and were called the fifth general mortgage or
fund. The sum borrowed upon it was £922,029:6s.

In 1710, those duties were again prolonged to the first of August 1720, and
were called the sixth general mortgage or fund. The sum borrowed upon it was
296, 52:9: 118k:

In 1711, the same duties (which at this time were thus subject to four different
anticipations), together with several others, were continued for ever, and made a fund
for paying the interest of the capital of the South-sea company, which had that year
advanced to government, for paying debts, and making good deficiencies, the sum of
£9,177,967:15:4d, the greatest loan which at that time had ever been made.

Before this period, the principal, so far as I have been able to observe, the only
taxes, which, in order to pay the interest of a debt, had been imposed for perpetuity,
were those for paying the interest of the money which had been advanced to
government by the bank and East-India company, and of what it was expected would
be advanced, but which was never advanced, by a projected land bank. The bank fund
at this time amounted to £3,375,027:17:10/2, for which was paid an annuity or interest
of £206,501:15:5d. The East-India fund amounted to £3,200,000, for which was paid
an annuity ot interest of £160,000; the bank fund being at six per cent., the Hast-India
fund at five per cent. interest.

Tamiya Spsyathe: fistiofeGeorgedl:vc.s 12, the different taxes which had been
mortgaged for paying the bank annuity, together with several others, which, by this act,

663

THE WEALTH OF NATIONS

were likewise rendered perpetual, were accumulated into one common fund, called the
aggregate fund, which was charged not only with the payment of the bank annuity, but
with several other annuities and burdens of different kinds. This fund was afterwards
augmented by the third of George I., c.8., and by the fifth of George L., c. 3, and the
different duties which were then added to it were likewise rendered perpetual.

In 1717, by the third of George L., c. 7, several other taxes were rendered perpetual,
and accumulated into another common fund, called the general fund, for the payment
of certain annuities, amounting in the whole to £724,849:6:10'2.

In consequence of those different acts, the greater part of the taxes, which before
had been anticipated only for a short term of years were rendered perpetual, as a
fund for paying, not the capital, but the interest only, of the money which had been
borrowed upon them by different successive anticipations.

Had money never been raised but by anticipation, the course of a few years would
have liberated the public revenue, without any other attention of government besides
that of not overloading the fund, by charging it with more debt than it could pay within
the limited term, and not of anticipating a second time before the expiration of the
first anticipation. But the greater part of European governments have been incapable
of those attentions. They have frequently overloaded the fund, even upon the first
anticipation; and when this happened not to be the case, they have generally taken
care to overload it, by anticipating a second and a third time, before the expiration of
the first anticipation. The fund becoming in this manner altogether insufficient for
paying both principal and interest of the money borrowed upon it, it became necessary
to charge it with the interest only, or a perpetual annuity equal to the interest; and
such improvident anticipations necessarily gave birth to the more ruinous practice of
perpetual funding. But though this practice necessarily puts off the liberation of the
public revenue from a fixed period, to one so indefinite that it is not very likely ever to
arrive; yet, as a greater sum can, in all cases, be raised by this new practice than by the
old one of anticipation, the former, when men have once become familiar with it, has,
in the great exigencies of the state, been universally preferred to the latter. To relieve
the present exigency, is always the object which principally interests those immediately
concerned in the administration of public affairs. The future liberation of the public
revenue they leave to the care of posterity.

During the reign of queen Anne, the market rate of interest had fallen from six
to five per cent.; and, in the twelfth year of her reign, five per cent. was declared to
be the highest rate which could lawfully be taken for money borrowed upon private
security. Soon after the greater part of the temporary taxes of Great Britain had been
rendered perpetual, and distributed into the aggregate, South-sea, and general funds,
the creditors of the public, like those of private persons, were induced to accept of
five per cent. for the interest of their money, which occasioned a saving of one per
cent. upon the capital of the greater part or the debts which had been thus funded for
perpetuity, or of one-sixth of the greater part of the annuities which were paid out
of the three great funds above mentioned. This saving left a considerable surplus in

664

ADAM SMITH

the produce of the different taxes which had been accumulated into those funds, over
and above what was necessary for paying the annuities which were now charged upon
them, and laid the foundation of what has since been called the sinking fund. In 1717,
it amounted to £523,454:7:7'. In 1727, the interest of the greater part of the public
debts was still further reduced to four per cent.; and, in 1753 and 1757, to three and
a-half, and three per cent., which reductions still further augmented the sinking fund.

A sinking fund, though instituted for the payment of oid, facilitates very much
the contracting of new debts. It is a subsidiary fund, always at hand, to be mortgaged
in aid of any other doubtful fund, upon which money is proposed to be taised in
any exigency of the state. Whether the sinking fund of Great Britain has been more
frequently applied to the one or to other of those two purposes, will sufficiently appear
by and by.

Besides those two methods of borrowing, by anticipations and by a perpetual
funding, there are two other methods, which hold a sort of middle place between them;
these are, that of borrowing upon annuities for terms of years, and that of borrowing
upon annuities for lives.

During the reigns of king William and queen Anne, large sums were frequently
borrowed upon annuities for terms of years, which were sometimes longer and
sometimes shorter. In 1695, an act was passed for borrowing one million upon an
annuity of fourteen per cent., or £140,000 a-year, for sixteen years. In 1691, an act
was passed for borrowing a million upon annuities for lives, upon terms which, in the
present times, would appear very advantageous; but the subscription was not filled
up. In the following year, the deficiency was made good, by borrowing upon annuities
for lives, at fourteen per cent. or a little more than seven years purchase. In 1695, the
persons who had purchased those annuities were allowed to exchange them for others
of ninety-six years, upon paying into the exchequer sixty-three pounds in the hundred;
that is, the difference between fourteen per cent. for life, and fourteen per cent. for
ninety-six years, was sold for sixty-three pounds, or for four and a-half years purchase.
Such was the supposed instability of government, that even these terms procured
few purchasers. In the reign of queen Anne, money was, upon different occasions,
borrowed both upon annuities for lives, and upon annuities for terms of thirty-two, of
eighty-nine, of ninety-eight, and of ninety-nine years. In 1719, the proprietors of the
annuities for thirty-two years were induced to accept, in lieu of them, South-sea stock
to the amount of eleven and a-half years purchase of the annuities, together with an
additional quantity of stock, equal to the arrears which happened then to be due upon
them. In 1720, the greater part of the other annuities for terms of years, both long and
short, were subscribed into the same fund. The long annuities, at that time, amounted
to £666,821: 8:34 a-year. On the 5th of January 1775, the remainder of them, or what
was not subscribed at that time, amounted only to £136,453:12:8d.

During the two wars which began in 1739 and in 1755, little money was borrowed,
either upon annuities for terms of years, or upon those for lives. An annuity for ninety-
eight or ninety-nine years, however, is worth nearly as much as a perpetuity, and should

665

THE WEALTH OF NATIONS

therefore, one might think, be a fund for borrowing nearly as much. But those who,
in order to make family settlements, and to provide for remote futurity, buy into the
public stocks, would not care to purchase into one of which the value was continually
diminishing; and such people make a very considerable proportion, both of the
proprietors and purchasers of stock. An annuity for a long term of years, therefore,
though its intrinsic value may be very nearly the same with that of a perpetual annuity, will
not find nearly the same number of purchasers. The subscribers to a new loan, who mean
generally to sell their subscription as soon as possible, prefer greatly a perpetual annuity,
redeemable by parliament, to an irredeemable annuity, for a long term of years, of only
equal amount. The value of the former may be supposed always the same, or very nearly
the same; and it makes, therefore, a more convenient transferable stock than the latter.

During the two last-mentioned wars, annuities, either for terms of years or for
lives, were seldom granted, but as premiums to the subscribers of a new loan, over
and above the redeemable annuity or interest, upon the credit of which the loan was
supposed to be made. They were granted, not as the proper fund upon which the
money was borrowed, but as an additional encouragement to the lender.

Annuities for lives have occasionally been granted in two different ways; either
upon separate lives, or upon lots of lives, which, in French, are called tontines, from
the name of their inventor. When annuities are granted upon separate lives, the death
of every individual annuitant disburdens the public revenue, so far as it was affected
by his annuity. When annuities are granted upon tontines, the liberation of the public
revenue does not commence till the death of all the annuitants comprehended in one
lot, which may sometimes consist of twenty or thirty persons, of whom the survivors
succeed to the annuities of all those who die before them; the last survivor succeeding
to the annuities of the whole lot. Upon the same revenue, more money can always
be raised by tontines than by annuities for separate lives. An annuity, with a right of
survivorship, is really worth more than an equal annuity for a separate life; and, from
the confidence which every man naturally has in his own good fortune, the principle
upon which is founded the success of all lotteries, such an annuity generally sells for
something more than it is worth. In countries where it is usual for government to raise
money by granting annuities, tontines are, upon this account, generally preferred to
annuities for separate lives. The expedient which will raise most money, is almost always
preferred to that which is likely to bring about, in the speediest manner, the liberation
of the public revenue.

In France, a much greater proportion of the public debts consists in annuities
for lives than in England. According to a memoir presented by the parliament of
Bourdeaux to the king, in 1764, the whole public debt of France is estimated at twenty-
four hundred millions of livres; of which the capital, for which annuities for lives had
been granted, is supposed to amount to three hundred millions, the eighth part of the
whole public debt. The annuities themselves are computed to amount to thirty millions
a-year, the fourth part of one hundred and twenty millions, the supposed interest of
that whole debt. These estimations, I know very well, are not exact; but having been

666

ADAM SMITH

presented by so very respectable a body as approximations to the truth, they may, I
apprehend, be considered as such. It is not the different degrees of anxiety in the two
governments of France and England for the liberation of the public revenue, which
occasions this difference in their respective modes of borrowing; it arises altogether
from the different views and interests of the lenders.

In England, the seat of government being in the greatest mercantile city in the
world, the merchants are generally the people who advance money to government.
By advancing it, they do not mean to diminish, but, on the contrary, to increase their
mercantile capitals; and unless they expected to sell, with some profit, their share in
the subscription for a new loan, they never would subscribe. But if, by advancing their
money, they were to purchase, instead of perpetual annuities, annuities for lives only,
whether their own or those of other people, they would not always be so likely to sell
them with a profit. Annuities upon their own lives they would always sell with loss;
because no man will give for an annuity upon the life of another, whose age and state
of health are nearly the same with his own, the same price which he would give for one
upon his own. An annuity upon the life of a third person, indeed, is, no doubt, of equal
value to the buyer and the seller; but its real value begins to diminish from the moment
it is granted, and continues to do so, more and more, as long as it subsists. It can never,
therefore, make so convenient a transferable stock as a perpetual annuity, of which the
real value may be supposed always the same, or very nearly the same.

In France, the seat of government not being in a great mercantile city, merchants do
not make so great a proportion of the people who advance money to government. The
people concerned in the finances, the farmers-general, the receivers of the taxes which
are not in farm, the court-bankers, etc. make the greater part of those who advance
their money in all public exigencies. Such people are commonly men of mean birth, but
of great wealth, and frequently of great pride. They are too proud to marry their equals,
and women of quality disdain to marry them. They frequently resolve, therefore, to live
bachelors; and having neither any families of their own, nor much regard for those
of their relations, whom they are not always very fond of acknowledging, they desire
only to live in splendour during their own time, and are not unwilling that their fortune
should end with themselves. The number of rich people, besides, who are either averse
to marry, or whose condition of life renders it either improper or inconvenient for
them to do so, is much greater in France than in England. To such people, who have
little or no care for posterity, nothing can be more convenient than to exchange their
capital for a revenue, which is to last just as long, and no longer, than they wish it to do.

The ordinary expense of the greater part of modern governments, in time of
peace, being equal, or nearly equal, to their ordinary revenue, when war comes, they
are both unwilling and unable to increase their revenue in proportion to the increase
of their expense. They are unwilling, for fear of offending the people, who, by so great
and so sudden an increase of taxes, would soon be disgusted with the war; and they are
unable, from not well knowing what taxes would be sufficient to produce the revenue
wanted. The facility of borrowing delivers them from the embarrassment which this

667

THE WEALTH OF NATIONS

fear and inability would otherwise occasion. By means of borrowing, they are enabled,
with a very moderate increase of taxes, to raise, from year to year, money sufficient for
carrying on the war; and by the practice of perpetual funding, they are enabled, with
the smallest possible increase of taxes, to raise annually the largest possible sum of
money. In great empires, the people who live in the capital, and in the provinces remote
from the scene of action, feel, many of them, scarce any inconveniency from the war,
but enjoy, at their ease, the amusement of reading in the newspapers the exploits of
their own fleets and armies. To them this amusement compensates the small difference
between the taxes which they pay on account of the war, and those which they had
been accustomed to pay in time of peace. They are commonly dissatisfied with the
return of peace, which puts an end to their amusement, and to a thousand visionary
hopes of conquest and national glory, from a longer continuance of the war.

The return of peace, indeed, seldom relieves them from the greater part of
the taxes imposed during the war. These are mortgaged for the interest of the debt
contracted, in order to carry it on. If, over and above paying the interest of this debt,
and defraying the ordinary expense of government, the old revenue, together with the
new taxes, produce some surplus revenue, it may, perhaps, be converted into a sinking
fund for paying off the debt. But, in the first place, this sinking fund, even supposing it
should be applied to no other purpose, is generally altogether inadequate for paying, in
the course of any period during which it can reasonably be expected that peace should
continue, the whole debt contracted during the war; and, in the second place, this fund
is almost always applied to other purposes.

The new taxes were imposed for the sole purpose of paying the interest of the
money borrowed upon them. If they produce more, it is generally something which
was neither intended nor expected, and is, therefore, seldom very considerable. Sinking
funds have generally arisen, not so much from any surplus of the taxes which was over
and above what was necessary for paying the interest or annuity originally charged
upon them, as from a subsequent reduction of that interest; that of Holland in 1655,
and that of the ecclesiastical state in 1685, were both formed in this manner. Hence the
usual insufficiency of such funds.

During the most profound peace, various events occur, which require an
extraordinary expense; and government finds it always more convenient to defray this
expense by misapplying the sinking fund, than by imposing a new tax. Every new tax
is immediately felt more or less by the people. It occasions always some murmur, and
meets with some opposition. The more taxes may have been multiplied, the higher
they may have been raised upon every different subject of taxation; the more loudly
the people complain of every new tax, the more difficult it becomes, too, either to find
out new subjects of taxation, or to raise much higher the taxes already imposed upon
the old. A momentary suspension of the payment of debt is not immediately felt by
the people, and occasions neither murmur nor complaint. To borrow of the sinking
fund is always an obvious and easy expedient for getting out of the present difficulty.
The more the public debts may have been accumulated, the more necessary it may have

668

ADAM SMITH

become to study to reduce them; the more dangerous, the more ruinous it may be to
misapply any part of the sinking fund; the less likely is the public debt to be reduced
to any considerable degree, the more likely, the more certainly, is the sinking fund to
be misapplied towards defraying all the extraordinary expenses which occur in time of
peace. When a nation is already overburdened with taxes, nothing but the necessities of
a new war, nothing but either the animosity of national vengeance, or the anxiety for
national security, can induce the people to submit, with tolerable patience, to a new tax.
Hence the usual misapplication of the sinking fund.

In Great Britain, from the time that we had first recourse to the ruinous expedient
of perpetual funding, the reduction of the public debt, in time of peace, has never
borne any proportion to its accumulation in time of war. It was in the war which began
in 1668, and was concluded by the treaty of Ryswick, in 1697, that the foundation of
the present enormous debt of Great Britain was first laid.

On the 31st of December 1697, the public debts of Great Britain, funded and
unfunded, amounted to £21,515,742:13:8'. A great part of those debts had been
contracted upon short anticipations, and some part upon annuities for lives; so that,
before the 31st of December 1701, in less than four years, there had partly been paid
off; and partly reverted to the public, the sum of £5,121,041:12:0%/d; a greater reduction
of the public debt than has ever since been brought about in so short a period of time.
The remaining debt, therefore, amounted only to £16,394,701:1:7'Ad.

In the war which began in 1702, and which was concluded by the treaty of Utrecht,
the public debts were still more accumulated. On the 31st of December 1714, they
amounted to {53,681,076:5:6//2. The subscription into the South-sea fund, of the short
and long annuities, increased the capital of the public debt; so that, on the 31st of
December 1722, it amounted to £55,282,978:1:3 5/6. The reduction of the debt began
in 1723, and went on so slowly, that, on the 31st of December 1739, during seventeen
yeats-of profound peace, the whole sum paid off was no more than £8,328,554:17:11
3/12, the capital of the public debt, at that time, amounting to £46,954,623:3:4 TINV2:

The Spanish war, which began in 1739, and the French war which soon followed
it, occasioned a further increase of the debt, which, on the 31st of December 1748,
after the war had been concluded by the treaty of Aix-la-Chapelle, amounted to
£78,293,313:1:107/4. The most profound peace, of 17 years continuance, had taken no
more than (8,328,354, 17:11'/ from it. A war, of less than nine years continuance, added
£31,338,689:18: 6 1/6 to it. {See James Postlethwaite’s History of the Public Revenue. }

During the administration of Mr. Pelham, the interest of the public debt was
reduced, or at least measures were taken for reducing it, from four to three per cent.;
the sinking fund was increased, and some part of the public debt was paid off. In
1755, before the breaking out of the late war, the funded debt of Great Britain
amounted to £72,289,675. On the 5th of January 1763, at the conclusion of the peace,
the funded debt amounted debt to £122,603,336:8:24. The unfunded debt has been
stated at £13,927,589:2:2. But the expense occasioned by the war did not end with
the conclusion of the peace; so that, though on the 5th of January 1764, the funded

669

THE WEALTH OF NATIONS

debt was increased (partly by a new loan, and partly by funding a part of the unfunded
debt) to £129,586,789:10:1%/, there still remained (according to the very well informed
author of Considerations on the Trade and Finances of Great Britain) an unfunded
debt, which was brought to account in that and the following year, of £9,975 0lil2e
15/44d. In 1764, therefore, the public debt of Great Britain, funded and unfunded
together, amounted, according to this author, to £1 39,561,807:2:4. The annuities for
lives, too, which had been granted as premiums to the subscribers to the new loans in
1757, estimated at fourteen years purchase, were valued at £472,500; and the annuities
for long terms of years, granted as premiums likewise, in 1761 and 1762, estimated at
twenty-seven and a-half years purchase, were valued at £6,826,875. During a peace of
about seven years continuance, the prudent and truly patriotic administration of Mr.
Pelham was not able to pay off an old debt of six millions. During a war of nearly the
same continuance, a new debt of more than seventy-five millions was contracted.

On the 5th of January 1775, the funded debt of Great Britain amounted
to £124,996,086, 1:6%4d. The unfunded, exclusive of a large civil-list debt, to
£4,150,236:3:11 7/8. Both together, to £129,146,322:5:6. According to this account,
the whole debt paid off, during eleven years of profound peace, amounted only to
£10,415,476:16:9 7/8. Even this small reduction of debt, however, has not been all
made from the savings out of the ordinary revenue of the state. Several extraneous
sums, altogether independent of that ordinary revenue, have contributed towards it.
Amongst these we may reckon an additional shilling in the pound land tax, for three
years; the two millions received from the East-India company, as indemnification for
their territorial acquisitions; and the one hundred and ten thousand pounds received
from the bank for the renewal of their charter. To these must be added several other
sums, which, as they arose out of the late war, ought perhaps to be considered as
deductions from the expenses of it. The principal are,

Thesproduceiotsbrenel prizestitneee £690,449: 18: 9
Composition for French prisonets......... 670,000: O: 0
What has been received from the sale
Oimiheveecedusland sacra. eee. 95,500: 0: 0

‘lotal eres, ee £1,455,949: 18: 9

If we add to this sum the balance of the earl of Chatham’s and Mr. Calcraft’s
accounts, and other army savings of the same kind, together with what has been
received from the bank, the East-India company, and the additional shilling in the
pound land tax, the whole must be a good deal more than five millions. The debt,
therefore, which, since the peace, has been paid out of the savings from the ordinary
revenue of the state, has not, one year with another, amounted to half a million a-year.
The sinking fund has, no doubt, been considerably augmented since the peace, by the
debt which had been paid off, by the reduction of the redeemable four per cents to
three per cents, and by the annuities for lives which have fallen in; and, if peace were
to continue, a million, perhaps, might now be annually spared out of it towards the
discharge of the debt. Another million, accordingly, was paid in the course of last year;

670

ADAM SMITH

but at the same time, a large civil-list debt was left unpaid, and we are now involved in
a new war, which, in its progress, may prove as expensive as any of our former wars.
{It has proved more expensive than any one of our former wars, and has involved us
in an additional debt of more than one hundred millions. During a profound peace of
eleven years, little more than ten millions of debt was paid; during a war of seven years,
mote than one hundred millions was contracted.} The new debt which will probably
be contracted before the end of the next campaign, may, perhaps, be nearly equal to
all the old debt which has been paid off from the savings out of the ordinary revenue
of the state. It would be altogether chimerical, therefore, to expect that the public debt
should ever be completely discharged, by any savings which are likely to be made from
that ordinary revenue as it stands at present.

The public funds of the different indebted nations of Europe, particularly those of
England, have, by one author, been represented as the accumulation of a great capital,
superadded to the other capital of the country, by means of which its trade is extended,
its manufactures are multiplied, and its lands cultivated and improved, much beyond
what they could have been by means of that other capital only. He does not consider
that the capital which the first creditors of the public advanced to government, was,
from the moment in which he advanced it, a certain portion of the annual produce,
turned away from serving in the function of a capital, to serve in that of a revenue;
from maintaining productive labourers, to maintain unproductive ones, and to be spent
and wasted, generally in the course of the year, without even the hope of any future
reproduction. In return for the capital which they advanced, they obtained, indeed,
an annuity of the public funds, in most cases, of more than equal value. This annuity,
no doubt, replaced to them their capital, and enabled them to carry on their trade and
business to the same, or, perhaps, to a greater extent than before; that is, they were
enabled, either to borrow of other people a new capital, upon the credit of this annuity
ot, by selling it, to get from other people a new capital of their own, equal, or superior,
to that which they had advanced to government. This new capital, however, which
they in this manner either bought or borrowed of other people, must have existed in
the country before, and must have been employed, as all capitals are, in maintaining
productive labour. When it came into the hands of those who had advanced their
money to government, though it was, in some fespects, a new capital to them, it was
not so to the country, but was only a capital withdrawn from certain employments, in
order to be turned towards others. Though it replaced to them what they had advanced
to government, it did not replace it to the country. Had they not advanced this capital
to government, there would have been in the country two capitals, two portions of the
annual produce, instead of one, employed in maintaining productive labour.

When, for defraying the expense of government, a revenue is raised within the
year, from the produce of free or unmortgaged taxes, a certain portion of the revenue
of private people is only turned away from maintaining one species of unproductive
labour, towards maintaining another. Some part of what they pay in those taxes,
might, no doubt, have been accumulated into capital, and consequently employed in

671

THE WEALTH OF NATIONS

maintaining productive labour; but the greater part would probably have been spent,
and consequently employed in maintaining unproductive labour. The public expense,
however, when defrayed in this manner, no doubt hinders, more or less, the further
accumulation of new capital; but it does not necessarily occasion the destruction of
any actually-existing capital.

When the public expense is defrayed by funding, it is defrayed by the annual
destruction of some capital which had before existed in the country; by the perversion
of some portion of the annual produce which had before been destined for the
maintenance of productive labour, towards that of unproductive labour. As in this
case, however, the taxes are lighter than they would have been, had a revenue sufficient
for defraying the same expense been raised within the year; the private revenue of
individuals is necessarily less burdened, and consequently their ability to save and
accumulate some part of that revenue into capital, is a good deal less impaired. If
the method of funding destroys more old capital, it, at the same time, hinders less the
accumulation or acquisition of new capital, than that of defraying the public expense
by a revenue raised within the year. Under the system of funding, the frugality and
industry of private people can more easily repair the breaches which the waste and
extravagance of government may occasionally make in the general capital of the society.

It is only during the continuance of war, however, that the system of funding has
this advantage over the other system. Were the expense of war to be defrayed always by
a revenue raised within the year, the taxes from which that extraordinary revenue was
drawn would last no longer than the war. The ability of private people to accumulate,
though less during the war, would have been greater during the peace, than under the
system of funding. War would not necessarily have occasioned the destruction of any
old capitals, and peace would have occasioned the accumulation of many more new.
Wars would, in general, be more speedily concluded, and less wantonly undertaken.
The people feeling, during continuance of war, the complete burden of it, would soon
grow weary of it; and government, in order to humour them, would not be under the
necessity of carrying it on longer than it was necessary to do so. The foresight of the
heavy and unavoidable burdens of war would hinder the people from wantonly calling
for it when there was no real or solid interest to fight for. The seasons during which
the ability of private people to accumulate was somewhat impaired, would occur more
rarely, and be of shorter continuance. Those, on the contrary, during which that ability
was in the highest vigour would be of much longer duration than they can well be
under the system of funding.

When funding, besides, has made a certain progress, the multiplication of taxes
which it brings along with it, sometimes impairs as much the ability of private people
to accumulate, even in time of peace, as the other system would in time of war. The
peace revenue of Great Britain amounts at present to more than ten millions a-year. If
free and unmortgaged, it might be sufficient, with proper management, and without
contracting a shilling of new debt, to carry on the most vigorous war. The private
revenue of the inhabitants of Great Britain is at present as much incumbered in time

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ADAM SMITH

of peace, their ability to accumulate is as much impaired, as it would have been in the
time of the most expensive war, had the pernicious system of funding never been
adopted.

In the payment of the interest of the public debt, it has been said, it is the right
hand which pays the left. The money does not go out of the country. It is only a part
of the revenue of one set of the inhabitants which is transferred to another; and the
nation is not a farthing the poorer. This apology is founded altogether in the sophistry
of the mercantile system; and, after the long examination which I have already bestowed
upon that system, it may, perhaps, be unnecessary to say anything further about it. It
supposes, besides, that the whole public debt is owing to the inhabitants of the country,
which happens not to be true; the Dutch, as well as several other foreign nations, having
a very considerable share in our public funds. But though the whole debt were owing
to the inhabitants of the country, it would not, upon that account, be less pernicious.

Land and capital stock are the two original sources of all revenue, both private
and public. Capital stock pays the wages of productive labour, whether employed
in agriculture, manufactures, or commerce. The management of those two original
sources of revenue belongs to two different sets of people; the proprietors of land, and
the owners or employers of capital stock.

The proprietor of land is interested, for the sake of his own revenue, to keep his
estate in as good condition as he can, by building and repairing his tenants houses,
by making and maintaining the necessary drains and inclosures, and all those other
expensive improvements which it properly belongs to the landlord to make and
maintain. But, by different land taxes, the revenue of the landlord may be so much
diminished, and, by different duties upon the necessaries and conveniencies of life,
that diminished revenue may be rendered of so little real value, that he may find
himself altogether unable to make or maintain those expensive improvements. When
the landlord, however, ceases to do his patt, it is altogether impossible that the tenant
should continue to do his. As the distress of the landlord increases, the agriculture of
the country must necessarily decline.

When, by different taxes upon the necessaries and conveniencies of life, the
owners and employers of capital stock find, that whatever revenue they derive from it,
will not, in a particular country, purchase the same quantity of those necessaries and
conveniencies which an equal revenue would in almost any other, they will be disposed
to remove to some other. And when, in order to raise those taxes, all or the greater
part of merchants and manufacturers, that is, all or the greater part of the employers
of great capitals, come to be continually exposed to the mortifying and vexatious visits
of the tax-gatherers, this disposition to remove will soon be changed into an actual
removing. The industry of the country will necessarily fall with the removal of the
capital which supported it, and the ruin of trade and manufactures will follow the
declension of agriculture.

To transfer from the owners of those two great sources of revenue, land, and
capital stock, from the persons immediately interested in the good condition of every

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particular portion of land, and in the good management of every particular portion
of capital stock, to another set of persons (the creditors of the public, who have no
such particular interest ), the greater part of the revenue arising from either, must, in
the long-run, occasion both the neglect of land, and the waste or removal of capital
stock. A creditor of the public has, no doubt, a general interest in the prosperity of
the agriculture, manufactures, and commerce of the country; and consequently in the
good condition of its land, and in the good management of its capital stock. Should
there be any general failure or declension in any of these things, the produce of the
different taxes might no longer be sufficient to pay him the annuity or interest which is
due to him. But a creditor of the public, considered merely as such, has no interest in
the good condition of any particular portion of land, or in the good management of
any particular portion of capital stock. As a creditor of the public, he has no knowledge
of any such particular portion. He has no inspection of it. He can have no care about
it. Its ruin may in some cases be unknown to him, and cannot directly affect him.

The practice of funding has gradually enfeebled every state which has adopted it.
The Italian republics seem to have begun it. Genoa and Venice, the only two remaining
which can pretend to an independent existence, have both been enfeebled by it. Spain
seems to have learned the practice from the Italian republics, and (its taxes being
probably less judicious than theirs) it has, in proportion to its natural strength, been-
still more enfeebled. The debts of Spain are of very old standing. It was deeply in
debt before the end of the sixteenth century, about a hundred years before England
owed a shilling. France, notwithstanding all its natural resources, languishes under an
oppressive load of the same kind. The republic of the United Provinces is as much
enfeebled by its debts as either Genoa or Venice. Is it likely that, in Great Britain alone,
a practice, which has brought either weakness or dissolution into every other country,
should prove altogether innocent?

The system of taxation established in those different countries, it may be said, is
inferior to that of England. I believe it is so. But it ought to be remembered, that when
the wisest government has exhausted all the proper subjects of taxation, it must, in
cases of urgent necessity, have recourse to improper ones. The wise republic of Holland
has, upon some occasions, been obliged to have recourse to taxes as inconvenient
as the greater part of those of Spain. Another war, begun before any considerable
liberation of the public revenue had been brought about, and growing in its progress
as expensive as the last war, may, from irresistible necessity, render the British system
of taxation as oppressive as that of Holland, or even as that of Spain. To the honour
of our present system of taxation, indeed, it has hitherto given so little embarrassment
to industry, that, during the course even of the most expensive wars, the frugality and
good conduct of individuals seem to have been able, by saving and accumulation, to
repair all the breaches which the waste and extravagance of government had made in
the general capital of the society. At the conclusion of the late war, the most expensive
that Great Britain ever waged, her agriculture was as flourishing, her manufacturers as
numerous and as fully employed, and her commerce as extensive, as they had ever been

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before. The capital, therefore, which supported all those different branches of industry,
must have been equal to what it had ever been before. Since the peace, agriculture has
been still further improved; the rents of houses have risen in every town and village of
the country, a proof of the increasing wealth and revenue of the people; and the annual
amount of the greater part of the old taxes, of the principal branches of the excise
and customs, in particular, has been continually increasing, an equally clear proof of
an increasing consumption, and consequently of an increasing produce, which could
alone support that consumption. Great Britain seems to support with ease, a burden
which, half a century ago, nobody believed her capable of supporting, Let us not,
however, upon this account, rashly conclude that she is capable of supporting any
burden; nor even be too confident that she could support, without great distress, a
burden a little greater than what has already been laid upon her.

When national debts have once been accumulated to a certain degree, there is
scarce, I believe, a single instance of their having been fairly and completely paid. The
liberation of the public revenue, if it has ever been brought about at all, has always
been brought about by a bankruptcy; sometimes by an avowed one, though frequently
by a pretended payment.

The raising of the denomination of the coin has been the most usual expedient
by which a real public bankruptcy has been disguised under the appearance of a
pretended payment. If a sixpence, for example, should, either by act of parliament or
royal proclamation, be raised to the denomination of a shilling, and twenty sixpences to
that of a pound sterling; the person who, under the old denomination, had borrowed
twenty shillings, or near four ounces of silver, would, under the new, pay with twenty
sixpences, or with something less than two ounces. A national debt of about a hundred
and twenty-eight millions, near the capital of the funded and unfunded debt of Great
Britain, might, in this manner, be paid with about sixty-four millions of our present
money. It would, indeed, be a pretended payment only, and the creditors of the public
would really be defrauded of ten shillings in the pound of what was due to them.
The calamity, too, would extend much further than to the creditors of the public, and
those of every private person would suffer a proportionable loss; and this without any
advantage, but in most cases with a great additional loss, to the creditors of the public.
If the creditors of the public, indeed, were generally much in debt to other people,
they might in some measure compensate their loss by paying their creditors in the same
coin in which the public had paid them. But in most countries, the creditors of the
public are, the greater part of them, wealthy people, who stand more in the relation of
creditors than in that of debtors, towards the rest of their fellow citizens. A pretended
payment of this kind, therefore, instead of alleviating, aggravates, in most cases, the
loss of the creditors of the public; and, without any advantage to the public, extends
the calamity to a great number of other innocent people. It occasions a general and
most pernicious subversion of the fortunes of private people; enriching, in most cases,
the idle and profuse debtor, at the expense of the industrious and frugal creditor; and
transporting a great part of the national capital from the hands which were likely to

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increase and improve it, to those who are likely to dissipate and destroy it. When it
becomes necessary for a state to declare itself bankrupt, in the same manner as when
it becomes necessary for an individual to do so, a fair, open, and avowed bankruptcy, is
always the measure which is both least dishonourable to the debtor, and least hurtful to
the creditor. The honour of a state is surely very poorly provided for, when, in order to
cover the disgrace of a real bankruptcy, it has recourse to a juggling trick of this kind,
so easily seen through, and at the same time so extremely pernicious.

Almostall states, however, ancient as well as modern, when reduced to this necessity,
have, upon some occasions, played this very juggling trick. The Romans, at the end of
the first Punic war, reduced the As, the coin or denomination by which they computed
the value of all their other coins, from containing twelve ounces of copper, to contain
only two ounces; that is, they raised two ounces of copper to a denomination which had
always before expressed the value of twelve ounces. The republic was, in this manner,
enabled to pay the great debts which it had contracted with the sixth part of what it
really owed. So sudden and so great a bankruptcy, we should in the present times be apt
to imagine, must have occasioned a very violent popular clamour. It does not appear
to have occasioned any. The law which enacted it was, like all other laws relating to
the coin, introduced and carried through the assembly of the people by a tribune, and
was probably a very popular law. In Rome, as in all other ancient republics, the poor
people were constantly in debt to the rich and the great, who, in order to secure their
votes at the annual elections, used to lend them money at exorbitant interest, which,
being never paid, soon accumulated into a sum too great either for the debtor to pay,
ot for any body else to pay for him. The debtor, for fear of a very severe execution,
was obliged, without any further gratuity, to vote for the candidate whom the creditor
recommended. In spite of all the laws against bribery and corruption, the bounty of the
candidates, together with the occasional distributions of coin which were ordered by
the senate, were the principal funds from which, during the latter times of the Roman
republic, the poorer citizens derived their subsistence. To deliver themselves from this
subjection to their creditors, the poorer citizens were continually calling out, either for
an entire abolition of debts, or for what they called new tables; that is, for a law which
should entitle them to a complete acquittance, upon paying only a certain proportion
of their accumulated debts. The law which reduced the coin of all denominations to a
sixth part of its former value, as it enabled them to pay their debts with a sixth part of
what they really owed, was equivalent to the most advantageous new tables. In order to
satisfy the people, the rich and the great were, upon several different occasions, obliged
to consent to laws, both for abolishing debts, and for introducing new tables; and they
probably were induced to consent to this law, partly for the same reason, and partly
that, by liberating the public revenue, they might restore vigour to that government, of
which they themselves had the principal direction. An operation of this kind would at
once reduce a debt of £128,000,000 to £21,333,333:6:8. In the course of the second
Punic war, the As was still further reduced, first, from two ounces of copper to one
ounce, and afterwards from one ounce to half an ounce; that is, to the twenty-fourth

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part of its original value. By combining the three Roman operations into one, a debt
of a hundred and twenty-eight millions of our present money, might in this manner
be reduced all at once to a debt of £5,333,333:6:8. Even the enormous debt of Great
Britain might in this manner soon be paid.

By means of such expedients, the coin of, I believe, all nations, has been gradually
reduced more and more below its original value, and the same nominal sum has been
gradually brought to contain a smaller and a smaller quantity of silver.

Nations have sometimes, for the same purpose, adulterated the standard of their
coin; that is, have mixed a greater quantity of alloy in it. If in the pound weight of our
silver coin, for example, instead of eighteen penny-weight, according to the present
standard, there were mixed eight ounces of alloy; a pound sterling, or twenty shillings
of such coin, would be worth little more than six shillings and eightpence of our
present money. The quantity of silver contained in six shillings and eightpence of
our present money, would thus be raised very nearly to the denomination of a pound
sterling. The adulteration of the standard has exactly the same effect with what the
French call an augmentation, or a direct raising of the denomination of the coin.

An augmentation, or a direct raising of the denomination of the coin, always is,
and from its nature must be, an open and avowed operation. By means of it, pieces of
a smaller weight and bulk are called by the same name, which had before been given to
pieces of a greater weight and bulk. The adulteration of the standard, on the contrary,
has generally been a concealed operation. By means of it, pieces are issued from the
mint, of the same denomination, and, as nearly as could be contrived, of the same
weight, bulk, and appearance, with pieces which had been current before of much
greater value. When king John of France, {See Du Cange Glossary, voce Moneta; the
Benedictine Edition.} in order to pay his debts, adulterated his coin, all the officers of
his mint were sworn to secrecy. Both operations are unjust. But a simple augmentation
is an injustice of open violence; whereas an adulteration is an injustice of treacherous
fraud. This latter operation, therefore, as soon as it has been discovered, and it could
never be concealed very long, has always excited much greater indignation than the
former. The coin, after any considerable augmentation, has very seldom been brought
back to its former weight; but after the greatest adulterations, it has almost always been
brought back to its former fineness. It has scarce ever happened, that the fury and
indignation of the people could otherwise be appeased.

In the end of the reign of Henry VIIL., and in the beginning of that of Edward
VL, the English coin was not only raised in its denomination, but adulterated in its
standard. The like frauds were practised in Scotland during the minority of James VI.
They have occasionally been practised in most other countries.

That the public revenue of Great Britain can never be completely liberated, or
even that any considerable progress can ever be made towards that liberation, while
the surplus of that revenue, or what is over and above defraying the annual expense
of the peace establishment, is so very small, it seems altogether in vain to expect.
That liberation, it is evident, can never be brought about, without either some very

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considerable augmentation of the public revenue, or some equally considerable
reduction of the public expense.

A more equal land tax, a more equal tax upon the rent of houses, and such alterations
in the present system of customs and excise as those which have been mentioned in the
foregoing chapter, might, perhaps, without increasing the burden of the greater part of
the people, but only distributing the weight of it more equally upon the whole, produce
a considerable augmentation of revenue. The most sanguine projector, however, could
scarce flatter himself, that any augmentation of this kind would be such as could give
any reasonable hopes, either of liberating the public revenue altogether, or even of
making such progress towards that liberation in time of peace, as either to prevent or
to compensate the further accumulation of the public debt in the next war.

By extending the British system of taxation to all the different provinces of the
empire, inhabited by people either of British or European extraction, a much greater
augmentation of revenue might be expected. This, however, could scarce, perhaps, be
done, consistently with the principles of the British constitution, without admitting
into the British parliament, or, if you will, into the states-general of the British empire,
a fair and equal representation of all those different provinces; that of each province
bearing the same proportion to the produce of its taxes, as the representation of Great
Britain might bear to the produce of the taxes levied upon Great Britain. The private
interest of many powerful individuals, the confirmed prejudices of great bodies of
people, seem, indeed, at present, to oppose to so great a change, such obstacles as it
may be very difficult, perhaps altogether impossible, to surmount. Without, however,
pretending to determine whether such a union be practicable or impracticable, it may
not, perhaps, be improper, in a speculative work of this kind, to consider how far the
British system of taxation might be applicable to all the different provinces of the
empire; what revenue might be expected from it, if so applied; and in what manner
a general union of this kind might be likely to affect the happiness and prosperity of
the differrent provinces comprehended within it. Such a speculation, can, at worst,
be regarded but as a new Utopia, less amusing, certainly, but no more useless and
chimerical than the old one.

The land-tax, the stamp duties, and the different duties of customs and excise,
constitute the four principal branches of the British taxes.

Ireland is certainly as able, and our American and West India plantations more
able, to pay a land tax, than Great Britain. Where the landlord is subject neither to
tythe nor poor’s rate, he must certainly be more able to pay such a tax, than where he
is subject to both those other burdens. The tythe, where there is no modus, and where
it is levied in kind, diminishes more what would otherwise be the rent of the landlord,
than a land tax which really amounted to five shillings in the pound. Such a tythe will
be found, in most cases, to amount to more than a fourth part of the real rent of the
land, or of what remains after replacing completely the capital of the farmer, together
with his reasonable profit. If all moduses and all impropriations were taken away, the
complete church tythe of Great Britain and Ireland could not well be estimated at

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less than six or seven millions. If there was no tythe either in Great Britain or Ireland,
the landlords could afford to pay six or seven millions additional land tax, without
being more burdened than a very great part of them are at present. America pays no
tythe, and could, therefore, very well afford to pay a land tax. The lands in America
and the West Indies, indeed, are, in general, not tenanted nor leased out to farmers.
They could not, therefore, be assessed according to any rent roll. But neither were the
lands of Great Britain, in the 4th of William and Mary, assessed according to any rent
roll, but according to a very loose and inaccurate estimation. The lands in America
might be assessed either in the same manner, or according to an equitable valuation, in
consequence of an accurate survey, like that which was lately made in the Milanese, and
in the dominions of Austria, Prussia, and Sardinia.

Stamp duties, it is evident, might be levied without any variation, in all countries
where the forms of law process, and the deeds by which property, both real and
personal, is transferred, are the same, or nearly the same.

The extension of the custom-house laws of Great Britain to Ireland and the
plantations, provided it was accompanied, as in justice it ought to be, with an extension
of the freedom of trade, would be in the highest degree advantageous to both. All
the invidious restraints which at present oppress the trade of Ireland, the distinction
between the enumerated and non-enumerated commodities of America, would be
entirely at an end. The countries north of Cape Finisterre would be as open to every
part of the produce of America, as those south of that cape are to some parts of that
produce at present. The trade between all the different parts of the British empire
would, in consequence of this uniformity in the custom-house laws, be as free as the
coasting trade of Great Britain is at present. The British empire would thus afford,
within itself, an immense internal market for every part of the produce of all its
different provinces. So great an extension of market would soon compensate, both to
Ireland and the plantations, all that they could suffer from the increase of the duties
of customs.

The excise is the only part of the British system of taxation, which would require
to be varied in any respect, according as it was applied to the different provinces of
the empire. It might be applied to Ireland without any variation; the produce and
consumption of that kingdom being exactly of the same nature with those of Great
Britain. In its application to America and the West Indies, of which the produce and
consumption are so very different from those of Great Britain, some modification
might be necessary, in the same manner as in its application to the cyder and beer
counties of England.

A fermented liquor, for example, which is called beer, but which, as it is made of
molasses, beats very little resemblance to our beer, makes a considerable part of the
common drink of the people in America. This liquor, as it can be kept only for a few
days, cannot, like our beer, be prepared and stored up for sale in great breweries; but
every private family must brew it for their own use, in the same manner as they cook
their victuals. But to subject every private family to the odious visits and examination

THE WEALTH OF NATIONS

of the tax-gatherers, in the same manner as we subject the keepers of ale-houses and
the brewers for public sale, would be altogether inconsistent with liberty. If, for the
sake of equality, it was thought necessary to lay a tax upon this liquor, it might be
taxed by taxing the material of which it is made, either at the place of manufacture, or,
if the circumstances of the trade rendered such an excise improper, by laying a duty
upon its importation into the colony in which it was to be consumed. Besides the duty
of one penny a-gallon imposed by the British parliament upon the importation of
molasses into America, there is a provincial tax of this kind upon their importation into
Massachusetts Bay, in ships belonging to any other colony, of eight-pence the hogshead;
and another upon their importation from the northern colonies into South Carolina,
of five-pence the gallon. Or, if neither of these methods was found convenient, each
family might compound for its consumption of this liquor, either according to the
number of persons of which it consisted, in the same manner as private families
compound for the malt tax in England; or according to the different ages and sexes of
those persons, in the same manner as several different taxes are levied in Holland; or,
nearly as Sir Matthew Decker proposes, that all taxes upon consumable commodities
should be levied in England. This mode of taxation, it has already been observed, when
applied to objects of a speedy consumption, is not a very convenient one. It might be
adopted, however, in cases where no better could be done.

Sugar, rum, and tobacco, are commodities which are nowhere necessaries of life,
which are become objects of almost universal consumption, and which are, therefore,
extremely proper subjects of taxation. If a union with the colonies were to take place,
those commodities might be taxed, either before they go out of the hands of the
manufacturer or grower; or, if this mode of taxation did not suit the circumstances
of those persons, they might be deposited in public warehouses, both at the place of
manufacture, and at all the different ports of the empire, to which they might afterwards
be transported, to remain there, under the joint custody of the owner and the revenue
officer, till such time as they should be delivered out, either to the consumer, to the
merchant-retailer for home consumption, or to the merchant-exporter; the tax not to
be advanced till such delivery. When delivered out for exportation, to go duty-free,
upon proper security being given, that they should really be exported out of the empire.
These are, perhaps, the principal commodities, with regard to which the union with
the colonies might require some considerable change in the present system of British
taxation.

What might be the amount of the revenue which this system of taxation, extended
to all the different provinces of the empire, might produce, it must, no doubt, be
altogether impossible to ascertain with tolerable exactness. By means of this system,
there is annually levied in Great Britain, upon less than eight millions of people, more
than ten millions of revenue. Ireland contains more than two millions of people, and,
according to the accounts laid before the congress, the twelve associated provinces
of America contain more than three. Those accounts, however, may have been
exaggerated, in order, perhaps, either to encourage theit own people, or to intimidate

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those of this country; and we shall suppose, therefore, that our North American and
West Indian colonies, taken together, contain no more than three millions; or that
the whole British empire, in Europe and America, contains no more than thirteen
millions of inhabitants. If, upon less than eight millions of inhabitants, this system of
taxation raises a revenue of more than ten millions sterling; it ought, upon thirteen
millions of inhabitants, to raise a revenue of more than sixteen millions two hundred
and fifty thousand pounds sterling. From this revenue, supposing that this system could
produce it, must be deducted the revenue usually raised in Ireland and the plantations,
for defraying the expense of the respective civil governments. The expense of the civil
and military establishment of Ireland, together with the interest of the public debt,
amounts, at a medium of the two years which ended March 1775, to something less
than seven hundred and fifty thousand pounds a year. By a very exact account of the
revenue of the principal colonies of America and the West Indies, it amounted, before
the commencement of the present disturbances, to a hundred and forty-one thousand
eight hundred pounds. In this account, however, the revenue of Maryland, of North
Carolina, and of all our late acquisitions, both upon the continent, and in the islands,
is omitted; which may, perhaps, make a difference of thirty or forty thousand pounds.
For the sake of even numbers, therefore, let us suppose that the revenue necessary
for supporting the civil government of Ireland and the plantations may amount to a
million. There would remain, consequently, a revenue of fifteen millions two hundred
and fifty thousand pounds, to be applied towards defraying the general expense of the
empire, and towards paying the public debt. But if, from the present revenue of Great
Britain, a million could, in peaceable times, be spared towards the payment of that debt,
six millions two hundred and fifty thousand pounds could very well be spared from
this improved revenue. This great sinking fund, too, might be augmented every year by
the interest of the debt which had been discharged the year before; and might, in this
manner, increase so very rapidly, as to be sufficient in a few years to discharge the whole
debt, and thus to restore completely the at-present debilitated and languishing vigour
of the empire. In the meantime, the people might be relieved from some of the most
burdensome taxes; from those which are imposed either upon the necessaries of life,
or upon the materials of manufacture. The labouring poor would thus be enabled to
live better, to work cheaper, and to send their goods cheaper to market. The cheapness
of their goods would increase the demand for them, and consequently for the labour
of those who produced them. This increase in the demand for labour would both
increase the numbers, and improve the circumstances of the labouring poot. Their
consumption would increase, and, together with it, the revenue arising from all those
articles of their consumption upon which the taxes might be allowed to remain.

The revenue arising from this system of taxation, however, might not immediately
increase in proportion to the number of people who were subjected to it. Great
indulgence would for some time be due to those provinces of the empire which were
thus subjected to burdens to which they had not before been accustomed; and even
when the same taxes came to be levied everywhere as exactly as possible, they would

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not everywhere produce a revenue proportioned to the numbers of the people. In a
poor country, the consumption of the principal commodities subject to the duties of
customs and excise, is very small; and in a thinly inhabited country, the opportunities of
smuggling are very great. The consumption of malt liquors among the inferior ranks
of people in Scotland is very small; and the excise upon malt, beer, and ale, produces
less there than in England, in proportion to the numbers of the people and the rate
of the duties, which upon malt is different, on account of a supposed difference of
quality. In these particular branches of the excise, there is not, I apprehend, much more
smuggling in the one country than in the other. The duties upon the distillery, and the
greater part of the duties of customs, in proportion to the numbers of people in the
respective countries, produce less in Scotland than in England, not only on account of
the smaller consumption of the taxed commodities, but of the much greater facility
of smuggling. In Ireland, the inferior ranks of people are still poorer than in Scotland,
and many parts of the country are almost as thinly inhabited. In Ireland, therefore, the
consumption of the taxed commodities might, in proportion to the number of the
people, be still less than in Scotland, and the facility of smuggling nearly the same. In
America and the West Indies, the white people, even of the lowest rank, are in much
better circumstances than those of the same rank in England; and their consumption
of all the luxuries in which they usually indulge themselves, is probably much greater.
The blacks, indeed, who make the greater part of the inhabitants, both of the southern
colonies upon the continent and of the West India islands, as they are in a state of
slavery, are, no doubt, in a worse condition than the poorest people either in Scotland
or Ireland. We must not, however, upon that account, imagine that they are worse fed,
or that their consumption of articles which might be subjected to moderate duties, is
less than that even of the lower ranks of people in England. In order that they may
work well, it is the interest of their master that they should be fed well, and kept in good
heart, in the same manner as it is his interest that his working cattle should be so. The
blacks, accordingly, have almost everywhere their allowance of rum, and of molasses
or spruce-beer, in the same manner as the white servants; and this allowance would not
probably be withdrawn, though those articles should be subjected to moderate duties.
The consumption of the taxed commodities, therefore, in proportion to the number of
inhabitants, would probably be as great in America and the West Indies as in any part
of the British empire. The opportunities of smuggling, indeed, would be much greater;
America, in proportion to the extent of the country, being much more thinly inhabited
than either Scotland or Ireland. If the revenue, however, which is at present raised by
the different duties upon malt and malt liquors, were to be levied by a single duty upon
malt, the opportunity of smuggling in the most important branch of the excise would
be almost entirely taken away; and if the duties of customs, instead of being imposed
upon almost all the different articles of importation, were confined to a few of the
most general use and consumption, and if the levying of those duties were subjected to
the excise laws, the opportunity of smuggling, though not so entirely taken away, would
be very much diminished. In consequence of those two apparently very simple and

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easy alterations, the duties of customs and excise might probably produce a revenue as
great, in proportion to the consumption of the most thinly inhabited province, as they
do at present, in proportion to that of the most populous.

The Americans, it has been said, indeed, have no gold or silver money, the interior
commerce of the country being carried on by a paper currency; and the gold and silver,
which occasionally come among them, being all sent to Great Britain, in return for the
commodities which they receive from us. But without gold and silver, it is added, there
is no possibility of paying taxes. We already get all the gold and silver which they have.
How is it possible to draw from them what they have not?

The present scarcity of gold and silver money in America, is not the effect of
the poverty of that country, or of the inability of the people there to purchase those
metals. In a country where the wages of labour are so much higher, and the price
of provisions so much lower than in England, the greater part of the people must
surely have wherewithal to purchase a greater quantity, if it were either necessary or
convenient for them to do so. The scarcity of those metals, therefore, must be the
effect of choice, and not of necessity.

It is for transacting either domestic or foreign business, that gold or silver money
is either necessary or convenient.

The domestic business of every country, it has been shewn in the second book
of this Inquiry, may, at least in peaceable times, be transacted by means of a paper
currency, with nearly the same degree of conveniency as by gold and silver money.
It is convenient for the Americans, who could always employ with profit, in the
improvement of their lands, a greater stock than they can easily get, to save as much
as possible the expense of so costly an instrument of commerce as gold and silver;
and rather to employ that part of their surplus produce which would be necessary
for purchasing those metals, in purchasing the instruments of trade, the materials
of clothing, several parts of household furniture, and the iron work necessary for
building and extending their settlements and plantations; in purchasing not dead stock,
but active and productive stock. The colony governments find it for their interest
to supply the people with such a quantity of paper money as is fully sufficient, and
generally more than sufficient, for transacting their domestic business. Some of those
governments, that of Pennsylvania, particularly, derive a revenue from lending this
paper money to their subjects, at an interest of so much per cent. Others, like that of
Massachusetts Bay, advance, upon extraordinary emergencies, a paper money of this
kind for defraying the public expense; and afterwards, when it suits the conveniency of
the colony, redeem it at the depreciated value to which it gradually falls. In 1747, See
Hutchinson’s History of Massachusetts Bay vol. ii. page 436 et seq.} that colony paid
in this manner the greater part of its public debts, with the tenth part of the money for
which its bills had been granted. It suits the conveniency of the planters, to save the
expense of employing gold and silver money in their domestic transactions; and it suits
the conveniency of the colony governments, to supply them with a medium, which,
though attended with some very considerable disadvantages, enables them to save that

683

THE WEALTH OF NATIONS

expense. The redundancy of paper money necessarily banishes gold and silver from the
domestic transactions of the colonies, for the same reason that it has banished those
metals from the greater part of the domestic transactions in Scotland; and in both
countries, it is not the poverty, but the enterprizing and projecting spirit of the people,
their desire of employing all the stock which they can get, as active and productive
stock, which has occasioned this redundancy of paper money.

In the exterior commerce which the different colonies carry on with Great Britain,
gold and silver are more or less employed, exactly in proportion as they are more or
less necessary. Where those metals are not necessary, they seldom appear. Where they
are necessary, they are generally found.

In the commerce between Great Britain and the tobacco colonies, the British
goods are generally advanced to the colonists at a pretty long credit, and are afterwards
paid for in tobacco, rated at a certain price. It is more convenient for the colonists to
pay in tobacco than in gold and silver. It would be more convenient for any merchant
to pay for the goods which his correspondents had sold to him, in some other sort of
goods which he might happen to deal in, than in money. Such a merchant would have
no occasion to keep any part of his stock by him unemployed, and in ready money, for
answering occasional demands. He could have, at all times, a larger quantity of goods
in his shop or warehouse, and he could deal to a greater extent. But it seldom happens
to be convenient for all the correspondents of a merchant to receive payment for the
goods which they sell to him, in goods of some other kind which he happens to deal in.
The British merchants who trade to Virginia and Maryland, happen to be a particular
set of correspondents, to whom it is more convenient to receive payment for the goods
which they sell to those colonies in tobacco, than in gold and silver. They expect to
make a profit by the sale of the tobacco; they could make none by that of the gold and
silver. Gold and silver, therefore, very seldom appear in the commerce between Great
Britain and the tobacco colonies. Maryland and Virginia have as little occasion for those
metals in their foreign, as in their domestic commerce. They are said, accordingly, to
have less gold and silver money than any other colonies in America. They are reckoned,
however, as thriving, and consequently as rich, as any of their neighbours.

In the northern colonies, Pennsylvania, New York, New Jersey, the four governments
of New England, etc. the value of their own produce which they export to Great
Britain is not equal to that of the manufactures which they import for their own use,
and for that of some of the other colonies, to which they are the carriers. A balance,
therefore, must be paid to the mother-country in gold and silver and this balance they
generally find.

In the sugar colonies, the value of the produce annually exported to Great Britain
is much greater than that of all the goods imported from thence. If the sugar and rum
annually sent to the mother-country were paid for in those colonies, Great Britain
would be obliged to send out, every year, a very large balance in money; and the trade
to the West Indies would, by a certain species of politicians, be considered as extremely
disadvantageous. But it so happens, that many of the principal proprietors of the

684

ADAM SMITH

sugar plantations reside in Great Britain. Their rents are remitted to them in sugar and
tum, the produce of their estates. The sugar and rum which the West India merchants
purchase in those colonies upon their own account, are not equal in value to the goods
which they annually sell there. A balance, therefore, must necessarily be paid to them in
gold and silver, and this balance, too, is generally found.

The difficulty and irregularity of payment from the different colonies to Great
Britain, have not been at all in proportion to the greatness or smallness of the balances
which were respectively due from them. Payments have, in general, been more regular
from the northern than from the tobacco colonies, though the former have generally
paid a pretty large balance in money, while the latter have either paid no balance,
or a much smaller one. The difficulty of getting payment from our different sugar
colonies has been greater or less in proportion, not so much to the extent of the
balances respectively due from them, as to the quantity of uncultivated land which
they contained; that is, to the greater or smaller temptation which the planters have
been under of over-trading, or of undertaking the settlement and plantation of greater
quantities of waste land than suited the extent of their capitals. The returns from the
great island of Jamaica, where there is still much uncultivated land, have, upon this
account, been, in general, more irregular and uncertain than those from the smaller
islands of Barbadoes, Antigua, and St. Christopher’s, which have, for these many years,
been completely cultivated, and have, upon that account, afforded less field for the
speculations of the planter. The new acquisitions of Grenada, Tobago, St. Vincent's,
and Dominica, have opened a new field for speculations of this kind; and the returns
front those islands have of late been as irregular and uncertain as those from the great
island of Jamaica.

It is not, therefore, the poverty of the colonies which occasions, in the greater
part of them, the present scarcity of gold and silver money. Their great demand for
active and productive stock makes it convenient for them to have as little dead stock
as possible, and disposes them, upon that account, to content themselves with a
cheaper, though less commodious instrument of commerce, than gold and silver. They
are thereby enabled to convert the value of that gold and silver into the instruments
of trade, into the materials of clothing, into household furniture, and into the iron
work necessary for building and extending their settlements and plantations. In those
branches of business which cannot be transacted without gold and silver money, it
appears, that they can always find the necessary quantity of those metals; and if they
frequently do not find it, their failure is generally the effect, not of their necessary
poverty, but of their unnecessary and excessive enterprise. It is not because they are
poor that their payments are irregular and uncertain, but because they are too eaget
to become excessively rich. Though all that part of the produce of the colony taxes,
which was over and above what was necessary for defraying the expense of their own
civil and military establishments, were to be remitted to Great Britain in gold and
silver, the colonies have abundantly wherewithal to purchase the requisite quantity of
those metals. They would in this case be obliged, indeed, to exchange a part of their

685

THE WEALTH OF NATIONS

surplus produce, with which they now purchase active and productive stock, for dead
stock. In transacting their domestic business, they would be obliged to employ a costly,
instead of a cheap instrument of commerce; and the expense of purchasing this costly
instrument might damp somewhat the vivacity and ardour of their excessive enterprise
in the improvement of land. It might not, however, be necessary to remit any part of
the American revenue in gold and silver. It might be remitted in bills drawn upon, and
accepted by, particular merchants or companies in Great Britain, to whom a part of
the surplus produce of America had been consigned, who would pay into the treasury
the American revenue in money, after having themselves received the value of it in
goods; and the whole business might frequently be transacted without exporting a
single ounce of gold or silver from America.

Itis not contrary to justice, that both Ireland and America should contribute towards
the discharge of the public debt of Great Britain. That debt has been contracted in
support of the government established by the Revolution; a government to which the
protestants of Ireland owe, not only the whole authority which they at present enjoy in
their own country, but every security which they possess for their liberty, their property,
and their religion; a government to which several of the colonies of America owe
their present charters, and consequently their present constitution; and to which all the
colonies of America owe the liberty, security, and property, which they have ever since
enjoyed. That public debt has been contracted in the defence, not of Great Britain
alone, but of all the different provinces of the empire. The immense debt contracted
in the late war in particular, and a great part of that contracted in the war before, were
both properly contracted in defence of America.

By a union with Great Britain, Ireland would gain, besides the freedom of trade,
other advantages much more important, and which would much more than compensate
any increase of taxes that might accompany that union. By the union with England,
the middling and inferior ranks of people in Scotland gained a complete deliverance
from the power of an aristocracy, which had always before oppressed them. By a union
with Great Britain, the greater part of people of all ranks in Ireland would gain an
equally complete deliverance from a much more oppressive aristocracy; an aristocracy
not founded, like that of Scotland, in the natural and respectable distinctions of birth
and fortune, but in the most odious of all distinctions, those of religious and political
prejudices; distinctions which, more than any other, animate both the insolence of the
oppressors, and the hatred and indignation of the oppressed, and which commonly
render the inhabitants of the same country more hostile to one another than those
of different countries ever are. Without a union with Great Britain, the inhabitants of
Ireland are not likely, for many ages, to consider themselves as one people.

No oppressive aristocracy has ever prevailed in the colonies. Even they, however,
would, in point of happiness and tranquillity, gain considerably by a union with Great
Britain. It would, at least, deliver them from those rancourous and virulent factions
which are inseparable from small democracies, and which have so frequently divided
the affections of their people, and disturbed the tranquillity of their governments, in

686

ADAM SMITH

their form so nearly democratical. In the case of a total separation from Great Britain,
which, unless prevented by a union of this kind, seems very likely to take place, those
factions would be ten times more virulent than ever. Before the commencement of the
present disturbances, the coercive power of the mother-country had always been able to
restrain those factions from breaking out into any thing worse than gross brutality and
insult. If that coercive power were entirely taken away, they would probably soon break
Out into open violence and bloodshed. In all great countries which are united under
one uniform government, the spirit of party commonly prevails less in the remote
provinces than in the centre of the empire. The distance of those provinces from the
capital, from the principal seat of the great scramble of faction and ambition, makes
them enter less into the views of any of the contending parties, and renders them more
indifferent and impartial spectators of the conduct of all. The spirit of party prevails
less in Scotland than in England. In the case of a union, it would probably prevail less
in Ireland than in Scotland; and the colonies would probably soon enjoy a degree of
concord and unanimity, at present unknown in any part of the British empire. Both
Ireland and the colonies, indeed, would be subjected to heavier taxes than any which
they at present pay. In consequence, however, of a diligent and faithful application of
the public revenue towards the discharge of the national debt, the greater part of those
taxes might not be of long continuance, and the public revenue of Great Britain might
soon be reduced to what was necessary for maintaining a moderate peace-establishment.

The territorial acquisitions of the East India Company, the undoubted right of the
Crown, that is, of the state and people of Great Britain, might be rendered another
soutce of revenue, more abundant, perhaps, than all those already mentioned. Those
countries are represented as more fertile, more extensive, and, in proportion to their
extent, much richer and more populous than Great Britain. In order to draw a great
revenue from them, it would not probably be necessary to introduce any new system of
taxation into countries which are already sufficiently, and more than sufficiently, taxed.
It might, perhaps, be more proper to lighten than to aggravate the burden of those
unfortunate countries, and to endeavour to draw a revenue from them, not by imposing
new taxes, but by preventing the embezzlement and misapplication of the greater part
of those which they already pay.

If it should be found impracticable for Great Britain to draw any considerable
augmentation of revenue from any of the resources above mentioned, the only
resource which can remain to her, is a diminution of her expense. In the mode of
collecting and in that of expending the public revenue, though in both there may be
still room for improvement, Great Britain seems to be at least as economical as any of
her neighbours. The military establishment which she maintains for her own defence in
time of peace, is more moderate than that of any European state, which can pretend to
rival her either in wealth or in power. None of these articles, therefore, seem to admit
of any considerable reduction of expense. The expense of the peace-establishment
of the colonies was, before the commencement of the present disturbances, very
considerable, and is an expense which may, and, if no revenue can be drawn from them,

687

THE WEALTH OF NATIONS

ought certainly to be saved altogether. This constant expense in time of peace, though
very great, is insignificant in comparison with what the defence of the colonies has cost
us in time of war. The last war, which was undertaken altogether on account of the
colonies, cost Great Britain, it has already been observed, upwards of ninety millions.
The Spanish war of 1739 was principally undertaken on their account; in which, and
in the French war that was the consequence of it, Great Britain, spent upwards of
forty millions; a great part of which ought justly to be charged to the colonies. In
those two warts, the colonies cost Great Britain much more than double the sum which
the national debt amounted to before the commencement of the first of them. Had
it not been for those wars, that debt might, and probably would by this time, have
been completely paid; and had it not been for the colonies, the former of those wars
might not, and the latter certainly would not, have been undertaken. It was because
the colonies were supposed to be provinces of the British Empire, that this expense
was laid out upon them. But countries which contribute neither revenue nor military
force towards the support of the empire, cannot be considered as provinces. They
may, perhaps, be considered as appendages, as a sort of splendid and shewy equipage
of the empire. But if the empire can no longer support the expense of keeping up
this equipage, it ought certainly to lay it down; and if it cannot raise its revenue in
proportion to its expense, it ought at least to accommodate its expense to its revenue.
If the colonies, notwithstanding their refusal to submit to British taxes, are still to
be considered as provinces of the British empire, their defence, in some future wat,
may cost Great Britain as great an expense as it ever has done in any former war. The
rulers of Great Britain have, for more than a century past, amused the people with the
imagination that they possessed a great empire on the west side of the Atlantic. This
empire, however, has hitherto existed in imagination only. It has hitherto been, not an
empire, but the project of an empire; not a gold mine, but the project of a gold mine;
a project which has cost, which continues to cost, and which, if pursued in the same
way as it has been hitherto, is likely to cost, immense expense, without being likely
to bring any profit; for the effects of the monopoly of the colony trade, it has been
shewn, are to the great body of the people, mere loss instead of profit. It is surely now
time that our rulers should either realize this golden dream, in which they have been
indulging themselves, perhaps, as well as the people; or that they should awake from it
themselves, and endeavour to awaken the people. If the project cannot be completed, it
ought to be given up. If any of the provinces of the British empire cannot be made to
contribute towards the support of the whole empire, it is surely time that Great Britain
should free herself from the expense of defending those provinces in time of war, and
of supporting any part of their civil or military establishment in time of peace; and
endeavour to accommodate her future views and designs to the real mediocrity of her
circumstances.

THE END

688

Made in the USA
Coppell, TX
24 August 2020

34691531R00378

An Inquiry into the Nature and Causes of the Wealth of
Nations, generally referred to by its shortened title The
Wealth of Nations, is the magnum opus of the Scottish
economist and moral philosopher Adam Smith.

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| j
First published in 1776, the book offers one of the .
world's first collected descriptions of what builds {
nations’ wealth, and is today a fundamental work in |
classical economics. By reflecting upon the economics —
at the beginning of the Industrial Revolution, the book
touches upon such broad topics as the division of
labour, productivity, and free markets.

It is the second most cited book in the social sciences
published before 1950, behind Karl Marx's Capital.

ISBN 9781978063846

===. 90000
= Global Classics —
~~
TCHR
9 "781978063846

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